Here are Wall Street’s top global stocks to play rising stagflation risks

Published Tue, Mar 29 202211:23 PM EDT

Wall Street analysts believe the global economy is on a precipice as stagflationary pressures mount — but Goldman Sachs and HSBC have a number of "stagflation winners" they think will outperform. A host of Wall Street banks have issued warnings that the economy could soon enter a period of stagflation — the potentially toxic combination of persistently high inflation, slow growth and high unemployment. Bank of America said on Mar. 16 that over 60% of global investors believe the world economy will be in stagflation over the next 12 months, while Jefferies noted on Mar. 21 that its lead indicators were "flashing stagflation." Goldman Sachs and HBSC, however, are more sanguine about the prospect of a return to 1970s-style economics. "Recession certainly can't be ruled out, nor can outright stagflation. Neither is yet a certainty but the risks of both have risen," HSBC strategists, led by Edward Stanford, said on Mar. 25. Likewise, Goldman Sachs' analysts, led by Timothy Moe, also said on Mar. 25 that investor concerns about stagflation had "recently intensified," with the economy "close to, but not in, quasi-stagflation." Both banks warned that stock returns could come under pressure against this backdrop. In addition, UBS believes that further short-term stock declines are possible given the "magnitude of current uncertainty." Goldman's picks So how should equity investors position themselves in this challenging environment? Goldman Sachs compiled a basket of "stagflation winners" with stable margins in outperforming industries during periods of quasi-stagflation in the U.S and Asia-pacific. These sectors include upstream commodities, rate-sensitive financials with below average valuations, as well as mid-or-downstream industries such as media, internet retail and air freight. The bank's picks within the commodity space include mining firms BHP and Rio Tinto , Australian energy firm Woodside Petroleum , Chinese state-owned oil companies CNOOC and PetroChina , China's largest lithium producer Ganfeng Lithium , South Korean steelmaker POSCO , Tata Steel and Thai state-owned oil company PTT Public. The bank also likes Korea's DB Insurance, Taiwan's Fubon Financial and CTBC Financial and Singapore's Oversea-Chinese Banking Corporation in the financials space. Read more Wall Street banks think these global stocks will benefit if stagflation takes hold These areas of the market could protect investors from stagflation, Jefferies says Goldman Sachs says 'stagflation' is here — and warns what it could mean for markets Other stocks that made Goldman's list are Australian conglomerate Wesfarmers , Tencent , Alibaba , Chinese technology firm NetEase , Chinese alcoholic beverage producers Kweichow Moutai and Wuliangye Yibin , South Korean biopharmaceutical firm Celltrion, Taiwanese food conglomerate Uni-President Enterprises , Nestle India and Tata Consumer Products . HSBC's picks HSBC screened for "quality defensive" stocks with growing earnings before interest and taxes margins — which the bank views as a proxy for pricing power, manageable debt ratio and a high return on capital. The bank's screen turned up Adidas , British discount retailer B & M European Value , French testing and certification firm Bureau Veritas , payment solutions firm Edenred , British engineering firm IMI , British inspection company Intertek , Italian electrical cables manufacturer Prysmian , French luxury goods retailer Richemont and Volvo . All are rated buy by the bank. The bank also screened for stocks with dividend growth above the inflation rate and dividend yields above the market benchmark. The list of top buy-rated stocks includes Luxembourg-based real estate firm Aroundtown , German healthcare provider Fresenius , German real estate firm LEG Immobilien and French telecommunications firm Orange . Credit Suisse's picks Amid the uncertainty surrounding global equity markets, Credit Suisse believes that staying invested is the "best course of action." "Periods of heightened market volatility and uncertainty can often lead to attractive long-term entry points," Credit Suisse managing director Kiran Ganesh wrote in the bank's second-quarter outlook report on Mar. 24. "We focus on parts of the market that have fallen substantially yet offer strong fundamentals or good long-term growth potential." The bank likes "beaten-down" tech stocks with cash flow resiliency, strong earnings prospects for 2022 and positive earnings revisions. It also favors stocks with exposure to the increasing use of the fifth-generation mobile network in applications such as the metaverse, autonomous driving, and artificial intelligence. The bank believes the fundamentals of a number of 5G companies remain attractive, with an average 16% earnings growth expected in 2022, despite ongoing macro volatility. Read more Tech analyst names 3 stocks set to pop on the superfast mobile internet boom Other themes that the bank likes include smart mobility, where it sees long-term growth potential and strong momentum, as well as automation and robotics, where it expects the rising digitalization of the manufacturing sector to lead to a new wave of investment. Rounding off the bank's top thematic picks is China A-shares, with the bank expecting China to outperform Asia and emerging markets in the coming months.

Consumers are feeling the pinch at the pump amid runaway inflation. Soaring prices has raised fears that the economy is headed towards a return of stagflation but a host of Wall Street banks such as Goldman Sachs and HSBC believe there remains opportunities for investors to safely navigate this tricky backdrop.

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Wall Street analysts believe the global economy is on a precipice as stagflationary pressures mount — but Goldman Sachs and HSBC have a number of "stagflation winners" they think will outperform.

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