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China’s reopening is seen as a major tailwind for stock markets this year, and Bernstein has shared a list of stock picks to cash in — which it says also provide downside protection. “We collaborate with our sector analysts to highlight 30 stocks which look well positioned to capture the China reopening tailwind, benefit from risk-on sentiment while not losing sight of the looming global recession risk,” Bernstein’s analysts, led by Jay Huang, wrote in a note on Feb. 20. The bank said it favors “laggards” — beaten down stocks of last year — as providing the “best exposure” this quarter in Asia. But it also urged investors to have some “defensive exposure” by holding high-yielding stocks to protect the downside in the event the market turns more risk-off. “The fact that high yielding names have generated significant alpha over the long-term in Asia and that the portfolio has never been so cheap outside the tech bubble, gives us much comfort to hold it even while markets remain more bullish,” the bank added. Add tech stocks One sector that Bernstein likes is tech. “We believe it is time to add more tech exposure as it is the most beaten down sector in the region still (even after all the recent rally), it has seen the worst drawdown since 2011, the sentiment towards the sector remains extremely depressed, earnings downgrades have bottomed out and valuations look more reasonable (the sector is trading below 5-year averages),” the bank said. Alibaba is one stock that made Bernstein’s screen. The bank believes Alibaba will gain market share as China reopens and said it is attracted to Alibaba’s “runway of potential event catalysts,” which includes a potential listing of its 33%-owned Ant Group. Alibaba’s shares also look “very modestly valued” on a variety of metrics, and risk-reward remains constructive, the bank added. Bernstein also likes Tencent , with the bank expecting Tencent to be a “share winner” in advertising in the “next few years.” “We think Tencent revenue growth can reach the low-teens percentages this year, and we expect the combination of segment mix improvement and limited operating expenses growth to mean earnings can grow close to 25% in 2023,” the bank said. Other internet stocks that made Bernstein’s screen include Pinduoduo and JD.com . “We continue to like Pinduoduo best within our e-commerce coverage. Alibaba should benefit from reopening, but Pinduoduo and JD market share trends should look stronger in the medium term,” the bank said. Outside of the internet space, several semiconductor stocks also appear on the bank’s list, including South Korean chip maker Samsung Electronics . “Our outperform thesis on memory mainly surrounds cyclical recovery of memory profitability, which we believe will occur as we head into 2H23, and therefore rebound in valuation from the current trough levels,” the bank said. Bernstein also likes Taiwanese chip maker MediaTek . The bank said concerns of weakening smartphone demand and pricing are “likely overdone” and urged investors to take advantage of the stock’s current low valuation. — CNBC’s Michael Bloom contributed to reporting
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