(Yicai Global) Jan. 10 -- Chinese stocks have good prospects this year and constituent stocks of the MSCI China Index, which tracks the Chinese market, could realize an upside of 10 percent, referring to their potential appreciation in value, according to the head of China research at Swiss banking giant UBS.

China’s stock market is attractive to investors both at home and abroad as it is currently at a historical low and is of an overall lower valuation than overseas indexes, Eric Lin said yesterday at the 23th UBS Greater China Conference. The gradual recovery of consumption in the country is set to boost listed firms' performance, leading to an uptick in profits.

Listed Chinese firms should see profit growth recover to about 15 percent this year from 4 percent last year, Meng Lei, China equity strategist at UBS’ securities unit in China, UBS Securities, said at the event.

On the other hand, in developed nations, market valuations are already quite high and the possibility of economic recession and high inflation is affecting the profit outlook of listed companies, Lin said.

The marked slump in Chinese stock valuations last year was mostly due to low investor confidence caused by recurring outbreaks of Covid-19 and the cooling real estate market, Meng said. Yet these hindering factors will wane this year.

In the short run, Zurich-based UBS is bullish on stocks in real estate and consumption, Meng said. Investors should 'overweight,' or devote a larger percentage of their portfolios, to stocks in food and beverage, home appliances, leisure services and other consumption areas.

Growth stocks, which refer to the stocks of fast-growing companies, are preferred in the medium term as investors’ appetite for risk improves, particularly those in the computer software and electric car battery sectors.

The upbeat outlook is based on UBS' forecast that China’s economy will grow 4.9 percent this year.

Though it may be not the big rebound people expected, it remains healthy growth, UBS Chief Executive Ralph Hamers said yesterday. China’s gross domestic product doubled in the last 10 years and it is likely to double again by 2035, he added.

Editors: Tang Shihua, Kim Taylor