Bank of America has named its preferred stock picks to navigate what it says will be a "volatile" year for China equities. "We expect a volatile 2022, with the market torn between a deteriorating macro economy and simulative policies, and between weakening corporate earnings and improving credit conditions," the bank's analysts, led by Winnie Wu, said on Jan. 4. The bank expects earnings growth to slow from nearly 20% last year to single-digit growth in 2022, Wu added. Against this backdrop, investors should focus on "quality names with sustained high earnings growth," the bank said, with a focus on the green economy and advanced manufacturing-related sectors. These, in turn, could be the "long term winners" under China's common prosperity policies, the bank said. Green economy Bank of America noted that the green economy sector is well aligned with China's commitment to decarbonization and is an important platform for China's sustainable and self-sufficient growth. The bank's picks in this space are battery manufacturers Contemporary Amperex Technology and Ganfeng Lithium , electric vehicle manufacturers BYD , Nio , Xpeng and Li Auto , as well as clean energy firms China Longyuan and Xinyi Solar. Advanced manufacturing Another sector that Bank of America thinks will do well is advanced manufacturing, which the bank said is a "key priority" for China to enhance its technological self-reliance and project China's transformation from low-cost global production factory to higher value-added production center with "created-in China products and Chinese brands." China's 14th Five-Year Plan had outlined a plan to upgrade its manufacturing and innovation capabilities by 2025, while the country has also announced a plan to develop 10,000 "little giants" — small-medium enterprises that are specialized in niche sectors with high market share, differentiated market positioning, strong innovative capability, and core technologies — to drive its growth in advanced manufacturing. To date, China has identified nearly 5,000 of these "little giants", of which 300 are listed domestically. Bank of America screened for companies with strong earnings momentum, positive share price momentum and those trading at below 100 times their price-to-earnings ratio. The bank's screen turned up medical X-Ray equipment manufacturer iRay Technology , industrial automation company Leader Harmonious Drive Systems , semiconductor components manufacturers Jiangsu Jiejie Microelectronics, PNC Process Systems and Shenzhen Dynanonic.
Pedestrians pass in front of a Bank of America branch in New York City.
Scott Mlyn | CNBC
Bank of America has named its preferred stock picks to navigate what it says will be a "volatile" year for China equities.