(Yicai) Jan. 13 -- Executives and analysts from Swiss investment bank UBS said they are optimistic about China’s stock market this year, expecting double-digit earnings growth and identifying artificial intelligence as a core investment theme. 

Firms in the MSCI China Index are expected to notch up average profit growth of 10 percent in 2026, as depreciation pressures ease following two straight years of declining capital expenditure and the effects of China’s anti-involution campaign gradually emerge, Wang Zonghao, head of China equity strategy research at UBS, said at the 26th UBS Greater China Conference today.

China’s anti-involution campaign refers to a set of policy signals and regulatory measures aimed at curbing excessive, low-return competition -- known in the country as neijuan, or involution -- especially in sectors such as manufacturing, technology, and new energy.

Chinese stocks have been staging a New Year rally amid record turnover in Shanghai and Shenzhen, following strong gains last year. The Shanghai Composite Index has risen 4.3 percent year-to-date, building on an 18 percent jump in 2025, its biggest annual increase in nearly six years, while Shenzhen’s tech-focused ChiNext Index has climbed 3.7 percent, extending last year’s 50 percent surge, which was its best showing since 2015.

Most institutional investors view AI as the future, Wang said, adding that China and the United States are the two leading countries in the field. Chinese AI companies have very low correlation with US equities, making them attractive to overseas investors seeking portfolio diversification, he noted.

The US is pursuing artificial general intelligence through heavy investment in computing power, while China is focusing more on refined vertical application models, Wang said, stressing that China has a far broader industrial application than the US. Since AI startup DeepSeek burst on the scene, US investors have markedly increased their understanding of Chinese semiconductor equipment and hardware firms, a change that became evident during a roadshow last September.

On stock selection, UBS highlights Chinese chip equipment makers and major internet platforms. The former benefit from a national self-reliance drive and on-shore substitution dynamics, while the latter are the primary beneficiaries of AI and have sharply stepped up capital expenditure on AI infrastructure, the standout capex category amid an otherwise declining trend.

In addition, UBS expects the photovoltaic industry to share in global AI construction dividends through the energy storage segment.

Editor: Emmi Laine