UBS reveals its 'highest-conviction' stock picks for emerging markets — including Alibaba

Published Thu, Jan 27 20227:26 PM EST

Evelyn Cheng @in/evelyn-cheng-53b23624 @chengevelyn

Chinese e-commerce and tech giant Alibaba is one of UBS analysts' highest conviction ideas for 2022. The company founded by Jack Ma is one of the few Chinese consumer discretionary stocks at the heart of the investment bank's strategy changes for the year ahead, according to a Jan. 20 report. Alibaba has been a poster child for the Chinese government's crackdown on alleged monopolistic behavior. Since economic growth began slowing in the last several months, analysts say the worst of the regulatory crackdown might be over as authorities focus more on supporting the economy. The beginning of the UBS analysts' positive turn began in November, with an upgrade of emerging markets consumer discretionary stocks, which includes many internet companies. Now, based on that change, the analysts said this month they have upgraded Chinese stocks to overweight, from neutral. That's relative to the weighting in the MSCI Emerging Markets Index. Their bet is based on expectations for "superior" growth in earnings, favorable valuations and fading regulatory concerns for Chinese stocks. For 2022, Alibaba and Tencent have the greatest weighting — 6% each — of any mainland China-based stock in the UBS top 40 emerging markets stock list. Unlike Alibaba, Tencent falls into the communication services sector, which UBS is neutral on. The UBS analysts added several other Chinese consumer discretionary stocks to their high conviction list for 2022. Those names include e-commerce and logistics giant JD.com , food delivery giant Meituan and electric car company BYD . Each of these new additions has a 1.9% weighting in the UBS list of top 40 emerging market stocks. "We think our new Top 40 offers superior earnings growth," the analysts said, "as its weighted median 2022 [estimated earnings per share growth] is 9.8 [percentage points] above the consensus estimate for MSCI EM, and its 15.4% trailing [return on equity] track record is far higher than the 13.4% EM average." Before the latest stock additions, between Sept. 20 and Jan. 19, UBS said its basket of top 40 emerging markets stocks fell by 0.4%, far less than the drop of 1.5% in the MSCI Emerging Markets Index during that time. The UBS analysts have buy ratings on all the stocks mentioned above. — CNBC's Michael Bloom contributed to this report.

Signage for Alibaba Group Holding Ltd. covers the front facade of the New York Stock Exchange November 11, 2015.

Brendan McDermid | Reuters

Chinese e-commerce and tech giant Alibaba is one of UBS analysts' highest conviction ideas for 2022.