UBS picks 19 emerging market stocks as 'winners' this year

Published Thu, Apr 1 20213:05 AM EDT

UBS has identified 19 stocks in emerging markets that are poised to perform strongly over the next 12 months, capitalizing on the trend of sustainable investing. More than $30 trillion of global assets under management is invested in environmental, social and governance (ESG) strategies, according to the Global Sustainable Investment Alliance, a collaboration of membership organizations focused on sustainable investing. In a note Monday, UBS analysts highlighted that despite their growing global popularity, sustainable strategies account for less than 1% of assets under management in emerging markets. However, they suggested that momentum is picking up, and these stocks are best placed to capitalize on it: Emerging Markets Equities Strategist Corinne de Boursetty and Analyst Wen Ching Lee identified companies from across the emerging markets space that they consider "ESG leaders" and which have a strong track record as "improvers." The UBS ESG "winners" basket is comprised of: AIA Group , Alibaba , Banco Bradesco , Bank Mandiri , China Construction Bank Corp , China Mobile (HK) , Geely Automobile , HDFC Bank , Lojas Renner , LONGi Green , Lukoil , Ping An Insurance , Polymetal International , Samsung Electronics , Samsung Fire & Marine Insurance , Sberbank , Sinopharm , Taiwan Semiconductor and Xinyi Solar. "We expect the MSCI EM ESG Leaders Index to generate a low-single-digit outperformance versus the broader MSCI EM Index over the next 12 months based on a positive earnings outlook," the analysts said. UBS said it had focused on companies with superior earnings growth and attractive valuations, combining robust fundamentals with positive social or environmental contribution. In geographical terms, UBS expects China, Brazil, Russia and Indonesia to outperform other regions relative to their weightings in the MSCI Emerging Markets Index. UBS also designates South Korea as an emerging market where some banks do not, since it enjoys a higher household net wealth than countries including France, Germany and Italy, according to data from the OECD. "Emerging markets have lower ESG scores on average, but often see faster improvement in their ESG performance than their peers from developed markets," the analysts added. "Empirical evidence suggests a focus on board structure, well thought out compensation policies, gender diversity and investment in human capital tend to drive higher return on equity, and lower earnings and share price volatility," they said. Banco Bradesco Water was the sustainability theme with the highest upside potential according to UBS' sustainable performance profile, averaging 7.2 out of 10. In terms of individual stocks, one of Brazil's largest banks, Banco Bradesco, received a perfect 10.0. "As a large-cap bank, we think Bradesco is well positioned to weather higher delinquency in Brazil — GDP projected to shrink by 5.5% in 2020 — as it has been de-risking its balance sheet over the last three years," the research note highlighted. "Its asset quality is better than peers, in our view, given its high pre-provision profitability and smaller consumer exposure." UBS said the bank stands to benefit from near 10% loan growth reacceleration as low interest rates drive a credit growth recovery, a shift toward loans to higher margin SMEs and consumers, and controlled operating costs and asset quality that should enable higher dividend payouts.

Brazil right now is in the middle of a "credit revolution," Cramer said. That’s why he likes some of the country’s banks, including Banco Bradesco.

Photo: Mauricio Lima | AFP | Getty Images

UBS has identified 19 stocks in emerging markets that are poised to perform strongly over the next 12 months, capitalizing on the trend of sustainable investing.

More than $30 trillion of global assets under management is invested in environmental, social and governance (ESG) strategies, according to the Global Sustainable Investment Alliance, a collaboration of membership organizations focused on sustainable investing.

In a note Monday, UBS analysts highlighted that despite their growing global popularity, sustainable strategies account for less than 1% of assets under management in emerging markets.

However, they suggested that momentum is picking up, and these stocks are best placed to capitalize on it: