As 2019 draws to a close, markets are beginning to turn their attention to how to position for 2020.

Investment bank UBS has joined the forecasting fray with a comprehensive rundown of the global economic outlook (it’s >400 pages long if you’re in the mood for a read).

Among the details that may be of interest to small-cap investors was an analysis of the outlook for Chinese stocks compared to the local market.

And despite its ongoing trade war, slowing economic growth and various geopolitical risks in the Asia-Pacific region, UBS rates China above Australia.

“We continue to consider China to be among the most attractive equity markets globally,” UBS said.

The bank said that as a general rule, markets were more bullish about the growth outlook for Chinese earnings per share (EPS) than the ASX.

Typically, the gap between 12-month forward earnings forecasts has remained steady at around 10 per cent.

But factoring in current stock valuations, that gap has increased to its largest level since the June half of 2016. In other words, Chinese stocks look cheaper relative to their growth prospects than the Australian market.

And for small-cap ASX companies with a China-focused strategy, UBS was relatively positive about the prospects for the broader Chinese economy, arguing that policy makers still have a number of fiscal and monetary levers they can pull to stabilise growth.

However, “unlike prior stimulus in China, it’s unlikely to generate positive spill-over effects for the broader emerging markets or materials-heavy Australia”, the analysts said.

Speaking of the trade war, UBS said the proposed US tariffs scheduled to go into effect this month — which have now been suspended — will remain on the shelf.

However, it still expects the December increase of 15 per cent on $160 billion of Chinese exports will be implemented, which is contrary to the market consensus.

Despite the various headwinds facing China’s economy, UBS said policymakers would tolerate growth slightly below the usual benchmark of 6 per cent, in order to “avoid a property stimulus and a sharp increase in leverage”.