Investing in China Opportunities for global investors 03 March 2021 Chief Investment Office GWM Investment research This report has been prepared by UBS Switzerland AG, UBS AG Hong Kong Branch, UBS AG London Branch, UBS AG Singapore Branch and UBS Financial Services Inc. (UBS FS). Please see important disclaimers and disclosures that begin on page 32. Contents 05 09 15 Why China: Too big and Chinese equities: Multifaceted Chinese bonds: A booming distinct to ignore and rapidly evolving onshore market 20 25 28 Global portfolio considerations: The renminbi: It’s a Multiple risks of China is an attractive diversifier marathon, not a sprint varying magnitude 31 Final thoughts This version reflects updates and corrections on pages 9 and 17. Investing in China Authors Editor Brennan Azevedo Abe De Ramos Learn more at Michael Gourd www.ubs.com/cio Laura Kane Design Lucy Qiu John Choi Lead authors Xingchen Yu Mark Haefele Michael Bolliger Cover picture Min Lan Tan Kiran Ganesh Shutterstock (Pudong, Shanghai, China) Solita Marcelli Barbara Grünewald Alejo Czerwonko Yifan Hu Publishing date Jason Draho Markus Irngartinger 03 March 2021 Adrian Zuercher Tilmann Kolb Eva Lee Language Teck Leng Tan English Chun-Lai Wu Crystal Zhao Contact
[email protected] 2 Investing in China – March 2021 Investing in China Over the past 20 years, China’s economy has grown fivefold to become the second largest in the world. For years, China’s financial markets lagged the country's eco- nomic ascendency, but they are now rapidly making up ground. As a result, over the past five years, global investors have started to diversify into Chinese financial as- sets, yet many are still significantly underallocated relative to China’s weight in glob- al equity and fixed income benchmarks.