Under Pressure in HK Stocks: UBS Bullish on China Stocks' Relative Advantage

Keywords

HK stock market, US high rates, China stocks, UBS, Asian stock market, investment strategy, economic resilience

Introduction

On July 15, 2026, the HK stock market came under pressure again, with major indices broadly lower and investor sentiment turning cautious. Against the complex global macro environment, expectations of the Fed maintaining high interest rates have further intensified, causing capital outflows and valuation pressure on Asian stock markets. However, UBS Investment Bank Asia-Pacific strategist Karen Hizon recently stated that although prolonged high US rates will challenge Asian stock markets, China stocks have low correlation with US rates and are likely to perform relatively better in the Chinese stock market. This view injects sober rational thinking into the currently depressed market.

Figure note: Intraday volatility of major HK indices showing market pressure.

US High Rates Persist, Asian Stocks Under Pressure

The federal funds rate has remained in the high range of 5.25% to 5.50% since 2024, with the Fed repeatedly signaling "higher for longer," delaying market expectations for rate cuts. This policy environment creates multiple pressures on Asia-Pacific emerging markets: high rates push up the USD, causing Asian currencies to depreciate and capital outflows to intensify; simultaneously, global risk appetite declines, funds shift from risk assets to safe havens, further suppressing stock valuations.

Historically, Asian stock markets have shown a significant negative correlation with US rates. When US rates rise, Asian stock markets often suffer from both liquidity tightening and economic slowdown. The impact is especially direct on export-oriented economies and markets with high external debt dependence. However, whether this rule fully applies to China stocks deserves in-depth discussion.

China Stocks: Relative Advantage with Low Correlation

UBS strategist Karen Hizon's core argument is that China stocks have low correlation with US rates. This judgment is based on multiple logics. First, the core drivers of China stocks in A-share and HK stock markets come more from domestic economic fundamentals, policy cycles, and corporate earnings, rather than external interest rate environments. China, as the world's second-largest economy, has relatively independent monetary policy space. The People's Bank of China has adhered to a "self-oriented" policy tone, adopting moderate easing measures during the Fed's hiking cycle, which to some extent offsets external shocks.

Second, China stocks' valuations are already at historical lows. Whether measured by PE or PB, HK-listed China stocks have significant discounts compared to major global markets, providing high safety margins. Even if high US rates suppress overall risk appetite, the value advantage of China stocks still attracts long-term funds. Karen Hizon specifically pointed out: "Within the Asian market, Chinese stock market's earnings growth expectations and policy support are more clear, making China stocks structurally attractive even under unfavorable interest rate environments."

China's Economic Resilience Supports China Stock Performance

The fundamental reason China stocks can maintain relative independence is China's economic resilience. Despite challenges such as real estate adjustment and local debt resolution, the slope of China's economic recovery has not deteriorated systematically. In the first half of 2026, China's GDP growth is expected to be maintained in the 4.5% to 5.0% range, consumption and services continue to recover, and high-end manufacturing and new energy industrial chains maintain strong growth. Meanwhile, policy efforts continue: fiscal deficit rate is moderately expanded, the central bank ensures reasonable liquidity through RRR cuts and structural refinancing tools, and regulators repeatedly speak to stabilize capital market expectations.

China stocks in the HK stock market, especially leaders in tech, consumption, and healthcare, benefit from domestic demand growth and the autonomous and controllable strategy, with relatively certain earnings repair trends. These companies have ample cash flow and stable asset-liability structures, with lower sensitivity to interest rate fluctuations compared to high-leverage industries. Therefore, even if the Fed maintains high rates, the fundamental support for China stocks remains solid.

Investment Strategy Outlook

Going forward, how should investors allocate? UBS suggests focusing on two types of China stock opportunities: first, consumption and internet platform companies benefiting from domestic economic recovery, with large earnings elasticity and adequate valuation repair space; second, central enterprises and public utility sectors combining high dividends and defensive attributes, providing stable returns in a high-rate environment. In addition, the continued expansion of Stock Connect and long-term fund inflows from mainland also provide incremental liquidity support for China stocks.

Of course, risks cannot be ignored. US-China relations, geopolitical tensions, and global economic slowdown may cause periodic disruptions to China stocks. But from a medium- to long-term perspective, the low-correlation feature and fundamental resilience of China stocks make them uniquely valuable in the current global interest rate environment.

Conclusion

Today's weak performance of HK stocks reflects market concerns about the high-rate environment, but UBS's view reminds us: not all Asian markets should be equated. China stocks, with their weak correlation with US rates, endogenous support from domestic economic policy, and low valuation levels, are expected to stand out in Asian stock markets. For investors, finding structural opportunities amidst volatility and focusing on fundamentally solid China enterprises may be a wise choice to navigate the interest rate fog.