Chinese stocks currently look “very, very attractive,” but are unlikely to see a quick turnaround in the next few months, according to UBS Global Wealth Management’s Kelvin Tay.

“I think China is cheap. If you look at the performance of China this year, on a relative basis, it has actually underperformed by about 40% against both the European indices as well as the American indices,” Tay, regional chief investment officer at UBS Global Wealth Management, told CNBC’s “Squawk Box Asia” on Tuesday.

As of Tuesday’s market close, China’s CSI 300 index, which tracks the largest mainland-listed stocks, has fallen nearly 5% for the year. In Hong Kong, where many of China’s tech titans are listed, the Hang Seng index has plummeted more than 14% in the same period.

In comparison, the S&P 500 on Wall Street rose to a new record close — its 69th in 2021 — as recently as Monday. Over in Europe, the pan-European Stoxx 600 has gained more than 22% for 2021 as of its Tuesday close.

“From a valuations perspective, from a positioning perspective, China certainly looks very, very attractive,” Tay said.

He warned, however, that the Chinese market is unlikely to recover in the next three months due to a “distinct lack of catalysts” presently. He cited the need for China’s property space to settle before the market can turn around.

Investors have largely shunned the Chinese real estate sector this year amid concerns over defaults as developers faced a credit crunch. In December, debt-laden property developer China Evergrande Group slipped into default after failing to confirm payment of a debt obligation.

“We do think that things actually starting to turn around but it’s just that, you know, on the issuers front, on the Chinese high-yield front, you’re probably still going to get some news, some negative news on a couple of developers blowing up, filing for defaults, filing for bankruptcies,” Tay said.

Such negative developments are likely to hurt sentiment, he warned: “If sentiment is fragile in the Chinese market right now, any small negative news is likely to be amplified and become big, and that in turn is going to actually affect the market as a whole.”

Looking ahead, Tay said Hong Kong-listed Chinese companies — which were “beaten down really, really badly” this year — are “likely to be far more attractive” as compared with their peers on the mainland.

“The policy risk tightening, we do think that most of that is actually over and done with,” the chief investment officer explained. “What you’re going to get going forward is probably fine tuning of the measures and not, you know, an unleashing of an overhaul of the system similar to what we had in the tuition industry in July this year.”

Another factor that is set to give Hong Kong-listed Chinese stocks a relative boost is expectations for a weakening in the yuan next year.

“The renminbi has been very, very strong,” Tay said. “The government has actually stressed on a couple of occasions that they’re not quite comfortable with the outperformance of the renminbi vis a vis the other currencies over the last six months.”

As of Wednesday afternoon during Asia trading hours, the onshore yuan has strengthened more than 2% against the dollar for 2021, while its offshore counterpart has gained nearly 2% against the greenback.

“We do expect the renminbi to actually weaken in 2022,” Tay said, adding that will likely affect the performance of mainland-listed Chinese stocks given their “very tight” correlation with the yuan.