Bernstein picks stocks in China and India that could beat the market within the next 12 months

Published Sun, Sep 12 20217:30 PM EDTUpdated Sun, Sep 12 20219:08 PM EDT

Investment firm Bernstein identified stocks in China and India which it says will beat other markets the most within the next year. It also explained how to pick such stocks in those regions. "Quality stocks in Asia have had a poor run for the last 12 months, including in the last two months when investors would have liked to rely on quality given the broader uncertainty in the markets," Bernstein analysts Rupal Agarwal and Anusha Madireddy wrote. But they said that there's a "small subset of quality stocks" that are likely to outperform the market. The firm assesses quality stocks on these metrics: low leverage, return on invested capital and earnings before interest and tax. For Asia and India, Bernstein recommends picking "high quality" stocks "which have neither been the most hit nor shown the most robust performance." That means those are stocks with average short-term momentum, according to the firm. The analysts explained that in Asia, such stocks have historically performed better than the rest of the market. Since 2015, they have beaten other stocks by 6.3%, according to Bernstein. Over in India, high quality stocks with momentum outperformed the market by around 10% in the past few months, Bernstein said. Investors who want to buy Chinese stocks should choose such stocks with the "highest short-term momentum," they wrote in an Sept. 6 note. These stocks have beat the market since 2015, generating annualized returns of around 13.8%, says Bernstein. High-momentum stocks tend to jump fast in a brief period of time, and those who use a momentum strategy seek short-term uptrends: they buy shares that are rising and sell them when they seem to have peaked. These are the stocks that Bernstein identified as being likely to beat the rest of the market: Mainland China: Cosmetics firm Proya Cosmetics, express delivery firm ZTO Express (New York listed), Tsingtao Brewery , e-commerce giant JD.com (Nasdaq listed) India: Automaker Maruti Suzuki India , IT consultancy firm Infosys , aerospace and defense electronics firm Bharat Electronics

The Shanghai Stock Exchange building.

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Investment firm Bernstein identified stocks in China and India which it says will beat other markets the most within the next year.

It also explained how to pick such stocks in those regions.