Investing in China (onshore)

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

Navigating the uneven recovery with growth and income Investing in China (onshore) Authors: 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

• 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. Source: UBS and GettyImages • We continue to favor both growth and defensive segments, maintaining Attractive views on offshore Chinese equities, onshore high-dividend stocks, and onshore high-grade credit bonds.

Our view Table 1: China onshore asset preferences (for CNY investors) After a sharp correction in mid-July, A-shares staged a meaningful recovery in early August as market sentiment stabilized and investors reassessed the medium-term outlook. The earlier selloff 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 been gradually repairing the July dislocation, with leadership returning to quality growth companies and sectors aligned with structural policy priorities.

Source: UBS, as of August 2026

This report has been prepared by UBS AG Hong Kong Branch. Analyst certification and required disclosures begin on page 9. UBSFS accepts responsibility for the contents of this report. U.S. persons who receive this report and wish to effect any transactions in any security discussed in this report should do so with UBSFS and not UBS AG.

Meanwhile, the macro picture suggests that the economy Fig. 1: July activity data weakened further entered 2H on a softer footing, with domestic demand remaining the key drag. The official NBS manufacturing PMI slipped back into contraction territory, while both new orders and non-manufacturing 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 Source: WIND, UBS, as of 31 July 2026 offset weakness in domestic economy and supporting manufacturing activity.

In the July Politburo meeting, policymakers emphasized faster and more effective implementation of existing Fig. 2: July inflation shows signs of tapering 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 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 Source: WIND, UBS, as of 31 July 2026 countercyclical policy approach, whereby 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 retain an Attractive view on offshore Chinese equities, underpinned by strengthening fundamentals and…