UBS Sees 20% Upside for China Stocks on Reflationary Potential

Chinese stocks may gain another 20% as rising inflation expectations translate into better earnings, according to UBS Securities Asia Ltd.

A bottom-up survey of the brokerage’s sector analysts suggests that more Chinese companies are looking to raise prices this year due to higher input cost, while excess capacity is showing signs of improvement. A reflationary environment would drive a valuations re-rating and stronger earnings-per-share growth, potentially boosting the MSCI China Index by 20%, UBS strategists said.