Bank of America has named a raft of Asian stocks that it thinks will do well even as the bank turns cautious in its broader outlook. The bank has forecast seven rate hikes from the Federal Reserve this year, followed by a further four hikes next year, in what the bank describes as a "fast" rate hike cycle. "A fast-tightening cycle translates into a rapid drop in the US (and global manufacturing sector) and is likely to hit Asian [earnings per share] growth hard in the coming two years," Bank of America's strategists, led by Ajay Singh Kapur, said on Feb. 9. The bank also noted that the tape — a measure of market breadth — has also turned poor. This means that market movements are driven primarily by a small number of stocks and could indicate increased volatility and weaker overall returns ahead. "What concerns us more is that the Fed is likely to raise rates and the tape is weak. This troublesome juxtaposition has occurred only 4% of the time since 1995, and annualized returns for Asia ex-Japan are -31%," Kapur said. Stock picks Against this backdrop, the bank screened for buy-rated large stocks with low price and earnings volatility, high profitability, and high dividend yield that are likely to weather the current conditions. The screen turned up stocks from sectors such as energy, telecommunications, real estate, financials and more. Within the telecommunications sector, the bank's top picks are Australia's Telstra Corp , Singapore's Singtel , Indonesia's PT Telkom , Thailand's Advanced Info and Taiwan Mobile . Two real estate firms — China Vanke and Longfor Group — made the list, while the energy sector saw the inclusion of three state-owned firms, namely China Shenhua Energy , Thailand's PTT Public Company and Coal India . Within the financial services sector, Bank of America's screen turned up Huatai Securities , China Merchants Securities and Haitong Securities in China, Malaysia's Public Bank and Indonesia's Bank Mandiri . Other stocks that made the bank's list include key Apple supplier Hon Hai Precision , electronics manufacturer Delta Electronics , semiconductor assembler ASE Technology , instant foods manufacturer Tingyi and Thai Beverage .
A Bank of America branch in San Francisco on Jan. 14, 2021.
David Paul Morris | Bloomberg | Getty Images
Bank of America has named a raft of Asian stocks that it thinks will do well even as the bank turns cautious in its broader outlook.