UBS China fund says shun EV stocks for ‘haven’ consumer staples

Bin Shi, head of China equities at UBS Asset Management, is avoiding crowded names that have rallied significantly this year. He prefers to own well-established companies like hard-liquor maker Kweichow Moutai Co., up about 1.8%, which face “no challenge” in their industries.

Is Going For Big Names Sustainable?
Shi, whose $2.7 billion UBS China Opportunity fund has beaten 96% of peers this year, trimmed holdings of exporters with US exposure after President Donald Trump was re-elected. He replaced them with domestic-focused services and staples companies, which he sees as more insulated from the new tariffs.

“People at times of uncertainty go for big names, established names, names with strong cash flow,” said Shi. “We have seen a lot of consumer brands in China come and go over the years — experiencing strong growth in the short term, but not sustainable in the long run.”

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Moutai, whose flagship baijiu drink typically retails for over 2500 yuan ($340) a bottle, is often regarded as a barometer of China’s economic activity. It accounts for more than 45% of a consumer staples gauge which has outperformed onshore benchmark CSI 300 Index this year by more than four percentage points.

Focus On Competitiveness 

Shi believes consumer-staple names may continue to rally as Beijing pushes policies to boost consumption and because the sector is regarded as a regional haven.

Shi, who joined UBS in 2006, warned against widely owned stocks — such as electric-vehicle makers like BYD Co. and Xiaomi Corp. — saying valuations are on the higher side and people tend to overlook the competitiveness in the sector.

“They might be doing well at this point, but in the long run, competition can come in anytime and probably will put some pressure on their margins” and growth, Shi said. “Some of the top names we own, the short-term growth rate may not be as strong as BYD and Xiaomi, but in the long run it’s probably more sustainable.”

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