(Yicai Global) April 11 -- UBS remains optimistic about Chinese stocks due to favorable policies and current market valuations that are not expensive, the Swiss investment bank and financial services company said in a research note today.

UBS also expects constituent stocks of the MSCI China Index to achieve 13 percent profit growth and median double-digit returns this year.

The market watch report, issued by UBS Wealth Management’s Chief Investment Office, pointed out that as more stimulus policies come into play, China’s economic growth is expected to recover strongly to about 5.5 percent in the second half of this year from a relatively weak less than 5 percent in the first half.

That will also provide a favorable environment for Chinese asset prices to rise, especially as the government improves coordination in the field of internet regulation and both China and the United States continue their communication, according to the report.

The report noted that Vice Premier Liu He recently hinted that the government’s policies will make coordinated efforts to stabilize economic growth and resolve recent market concerns.

In the short term, UBS is optimistic about sectors that are expected to benefit from fiscal stimulus and high commodity prices and also withstand market volatility. These include cyclical and value-related sectors such as energy, telecoms, metals mining, and building materials. In addition, some beer and dairy companies as well as renewable energy firms are expected to perform well.

In the medium and long run, UBS believes that the increased focus on tech-related independent innovation and expenditure should be conducive to smart infrastructure and network security. Consumer durables and services, electric vehicle supply chains and the digital economy are also expected to benefit from favorable policies and rising demand.

Meanwhile, overseas-listed Chinese stocks look attractive to investors because their valuations are already low and their earnings growth prospects are strong, the report added.

Editor: Peter Thomas