China A-shares

20 August 2026, 21:00 UTC Chief Investment Office GWM Investment Research

China A-shares CIO View: China A-Shares Adrian Zuercher, Head CIO Global Asset Allocation, UBS AG Hong Kong Branch Chun Lai Wu, Head CIO Asia Asset Allocation, UBS AG Hong Kong Branch Kasey Wang, CFA, Strategist, UBS AG Hong Kong Branch Christy Yuen, Strategist, UBS AG Hong Kong Branch

Neutral • A-shares regained momentum after the July correction, as improving market sentiment and supportive liquidity conditions helped reverse an earlier unwind of crowded positions.

• The macro backdrop remains soft, with weak domestic demand, subdued inflation, and lackluster activity data pointing to an uneven recovery. Policymakers have so far preferred targeted implementation of existing measures rather than broad-based stimulus.

• We maintain an Attractive view on onshore high-dividend stocks. Source: UBS

Our view Fig. 1: July activity data weakened After a sharp correction in mid-July, A-shares staged a meaningful recovery further in early August as market sentiment stabilized and investors reassessed the medium-term outlook. The earlier sell-off was largely driven by the unwinding of crowded positions, with high-beta growth stocks and market leaders experiencing the greatest pressure. As liquidity remained supportive and concerns over the correction eased, these segments led the recovery, supported by renewed risk appetite and improving positioning. In many respects, the market has gradually repaired the July dislocation, with leadership returning to quality growth companies and sectors aligned with structural policy priorities. Source: WIND, UBS, as of 31 July 2026 Meanwhile, the macro picture suggests that the economy has entered the second half on a softer footing, with domestic demand remaining the key drag. The official National Bureau of Statistics (NBS) manufacturing purchasing managers' index (PMI) slipped back into contraction territory, while both new orders and nonmanufacturing activity softened, pointing to still-fragile domestic demand and a loss of broad-based growth momentum. At the same time, price pressures remain subdued, with weakness extending beyond energy-related factors, highlighting ongoing challenges in both household spending and investment. July activity data reinforced this message, showing limited traction across consumption, investment, and labor market conditions. Exports continue to provide an important buffer, helping offset weakness in the domestic economy and supporting manufacturing activity.

In the July Politburo meeting, policymakers emphasized faster and more effective implementation of existing policies. The focus remains on accelerating public investment and speeding up the deployment of previously approved funding toward strategic national priorities, equipment upgrades, consumer trade-in programs, and key infrastructure

This report has been prepared by UBS AG Hong Kong Branch. Please see important disclaimers and disclosures that begin on page 3.

projects. Monetary policy continues to be characterized as moderately accommodative, with authorities retaining flexibility to deploy additional policy tools as needed, while efforts to support domestic demand are centered on expanding service consumption and improving the quality and efficiency of supply. The absence of significant easing measures is consistent with China's countercyclical policy approach, in which policymakers are less inclined to deliver large-scale stimulus when external demand remains supportive. Nonetheless, authorities have signaled a willingness to provide additional targeted support should growth momentum weaken further.

Against this backdrop, we maintain an Attractive view on onshore high- dividend equities for their defensive characteristics and ability to provide portfolio stability.

A-share dividend stocks: Attractive

We maintain an Attractive view on high-dividend stocks, as their defensive Fig. 2: Dividend stock yields earnings profile and attractive income characteristics should continue to are attractive in a low-yielding appeal to investors amid heightened geopolitical uncertainty, low bond environment yields, and a still-fragile domestic demand…