UBS has named a number of Chinese stocks it says have remained “resilient” during periods of heightened geopolitical tensions between the United States and China. Chinese stocks were volatile after tensions rose between the U.S. and China over alleged spy balloons shot down over North America in February. In a note to clients on March 13, the Swiss bank said that more market volatility is expected when a potential U.S. ban on investment in some Chinese sectors is announced. To combat such swings in investors’ portfolios, UBS identified stocks it said have historically been resilient during periods of heightened geopolitical tension. Additionally, the investment bank said it could determine the extent to which the market had priced in geopolitical concerns based on the relative valuation of these stocks to the MSCI China index. The following four buy-rated stocks have seen a less-than 3% change in share price, on average, over the past eight geopolitical events. According to UBS, Hong Kong-listed gas distributor China Resources Gas , solar engineering firm Zhejiang Jinggong and aviation firm China Avionics Systems were among the stocks with the lowest volatility during U.S.-China tensions. Shares in China Resources Gas and China Avionics Systems are also expected to rise by 27% and 33% over the next 12 months, according to the average price target of analysts compiled by FactSet. China Resources Gas and food processor Fujian Sunner are accessible to U.S. investors through the Global X MSCI China Utilities ETF and MSCI China Consumer Staples ETF . “We continue to favour the A-share market given its historical outperformance in periods of heightened geopolitical tension and as a key beneficiary of excess deposit flows,” the UBS strategists led by James Wang said. The Swiss bank said the stocks that tend to outperform during periods of geopolitical tension are typically domestic-focused, have lower foreign investor ownership, and are stable and defensive. In contrast, UBS said the 20 stocks that historically perform the worst during times of geopolitical tension tend to be listed in the U.S. and are typically in the internet and biotech sectors. The bank also said the gauge is currently one notch above the historical average, indicating that the market has priced in an elevated level of geopolitical concern.
