Wall Street banks name their top global stock picks to navigate market volatility

Published Wed, Mar 30 20229:43 PM EDT

Defensive stocks, "rock solid" payouts and buying the dip: Wall Street banks Bernstein, Jefferies and HSBC name their favorite Asian stocks to navigate the market volatility. Stagflation and recession fears have grown since the Federal Reserve announced its first rate hike in more than three years earlier this month, as well as signaling more are on the way as it seeks to stamp out runaway inflation. Surging energy prices and geopolitical risks in Europe have compounded market nervousness about a possible economic slowdown. What's more, U.S. five-year and 30-year Treasury yields inverted for the first time since 2006 on Monday, heightening fears of a possible recession. "Asia tends to underperform global equities when the global cycle is slowing. Also, the Asia earnings outlook is deteriorating as highlighted by a falling earnings revision ratio," Bank of America's strategists, led by Nigel Tupper, said on Mar. 29. Investors may need to consider a combination of earnings stability for a downturn coupled with stocks which benefit from inflation and higher bond yields, Tupper added. Bank of America screened for stocks which it thinks will outperform the MSCI Asia-Pacific ex-Japan index. The screen turned up China Minsheng Bank , dairy products manufacturer China Feihe , New China Life Insurance , real estate group Longfor Group , AIA , Indian natural resources firm Vedanta , Indonesia's Bank Mandiri , Samsung Electronics and Singapore banking giant Oversea-Chinese Banking Corporation . The bank also screened for stocks which it says "appear immune" to economic cycles. These stocks have delivered "consistent and superior" earnings growth and performance over a 10-year period, the bank said. The screen turned up building materials manufacturer James Hardie , Australian online real estate advertising firm REA Group , Australian property group Charter Hall , Hong Kong electronics manufacturer Techtronic and global chip titan Taiwan Semiconductor Manufacturing Company . Buying the dip Meanwhile, Bernstein believes a "more defensive" stance is needed against the backdrop of possible stagflation, noting that defensive — or high quality — stocks have historically done well during a slowing global cycle and rising inflation in Asia. Bernstein strategist Rupal Agarwal noted that the best dip-buying opportunities are typically found in companies which are high quality but have not picked up momentum, with these stocks outperforming the broader market over the past 10 years and also proving more resilient in the recent sell-off. Moreover, valuations of these high quality and short-term neutral momentum stocks have come down more sharply, alongside a better earnings outlook, he added. Bernstein's top "high quality and short-term neutral momentum" stocks include Chinese alcoholic beverages producer Kweichow Moutai and Taiwanese electronics firm Novatek Microelectronics , both rated overweight by the bank. The bank said investors should also pick high quality Chinese stocks which had been leaders in the recent sell-off while sticking to high-quality Indian stocks with neutral momentum. Its top overweight-rated picks in this space are China's Proya Cosmetics, Indian internet company I nfo Edge (India) , Indian state-owned defense electronics firm Bharat Electronics and Tata Consultancy . Weathering the perfect storm Amid the recent sell-off in Chinese equities, HSBC says it is now focusing on fundamentals. "We see more positives than negatives when we assess corporate earnings, the economic recovery, policy changes on COVID-19, market liquidity, as well as earnings revisions and valuations," HSBC's analysts, led by Steven Sun, said on Mar. 29. The bank remains bullish on Chinese equities and sees potential upside of between 17% to 24%, despite slashing its year-end targets due to a higher equity risk premium. HSBC's top buy-rated stock picks include Spring Airlines and China Tourism Group Duty Free to play the Covid reopening theme, waterproof building materials maker Beijing Oriental Yuhong and Industrial Bank to play China's growth stabilization theme, as well as semiconductor products manufacturers Starpower and SG Micro to benefit from China's drive to build independent and self-sufficient technology value chains. The bank also likes lithium-ion battery manufacturer Contemporary Amperex Technology and Chinese automaker BYD for their green economy exposure as China embarks on its net-zero transition, as well as Muyuan Foods and Shanghai Fosun Pharmaceutical as stocks that are likely to rebound given favorable industrial upcycles or increasing risk appetite by investors. 'Rock solid' payouts Jefferies too has a raft of stock picks it thinks will do well in the current market volatility. "Historically, Japan high-yield basket has been the best inflation-hedge globally and a beneficiary of rising bond yields. The basket has also been a standout performer since 2021 and could remain in vogue amid rising stagflationary woes," Jefferies' analysts, led by Shrikant Kale, said on Mar. 29. The bank likes stocks with "rock-solid" dividends to navigate the volatility and avoid dividend-cut risk, as well as high-yield "cash machines" to safely combat the stagflation risk. Jefferies' screen of stocks with rock-solid dividends includes insurer Tokio Marine , Japan Tobacco , Mitsubishi Electric , Panasonic , Toyota , Suzuki Motor and security solutions provider Secom . The bank's basket of "cashflow machines" include telecommunications firm KDDI , Nintendo , advertising giant Dentsu , IT services provider SCSK , electronics manufacturer Brother Industries and Santen Pharmaceutical .

Market volatility has been on the rise on the back of soaring inflation, geopolitical tensions and rising recession risks. But some Wall Street banks have a raft of stock picks to navigate this challenging backdrop.

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Defensive stocks, "rock solid" payouts and buying the dip: Wall Street banks Bernstein, Jefferies and HSBC name their favorite Asian stocks to navigate the market volatility.