The Swiss bank has set out its thinking after the central bank of China made a significant easing of its monetary policy.

UBS is positive towards Chinese bonds and neutral on the Asian giant’s equity market after the country’s central bank cut the required reserve ratio by 1.0 per cent.

The People’s Bank of China cut the RRR following relatively weak first-quarter Chinese GDP figures and the cut was deeper than UBS had expected, it said in a note on the country.

“The central bank made the cut despite already low current inter-bank rates (an indication of relatively loose liquidity), suggesting that its purpose is mainly to boost credit growth. We expect the recent policy measures (monetary and property) to lead to a sequential economic growth rebound in 2Q. We expect an interest rate cut in the next few months and the government should focus on a targeted approach to support the economy,” Gao Ting, macroeconomics head at the chief investment office of UBS Wealth Management, said in a note.

The bank noted that the China A50 and H-share index futures fell 6.0 per cent and 3.6 per cent in post-market trading on last Friday after the Chinese regulator tightened margin financing in the China A-share market. (The China Securities Regulatory Commission said it will ban brokers from taking part in margin financing in the shadow-banking market. Also, the Securities Association of China unveiled a change to allow easier stock lending. The CSRC has added that it doesn’t want investors to assume that the regulator intended to encourage short selling and suppress the stock market.

Against such a background, UBS said that it is neutral on Chinese equities in its regional strategy.

“Despite the increase in market volatility, we continue to like stocks with robust fundamentals with attractive valuations that will benefit from the fund inflows into Hong Kong and policy developments in China. We identify six investment opportunities in this volatile market, including heavily discounted H-shares, mid/small caps, "Internet+", stocks with high overseas growth potential, SOE reform beneficiaries, and Hong Kong blue-chip local companies,” the bank said.

As far as bonds are concerned, UBS said China’s recently policy easing is “constructive for Chinese issuers in general”; the bank said there are some opportunities in the high-yield segment.