UBS states that due to increasing political turmoil and limited potential upside from U.S. rate hikes, they maintain a neutral stance on overall emerging market (EM) stocks.
However, the brokerage favors technology stocks within emerging markets, noting that this sector has significantly outperformed other EM sectors in recent months. They particularly highlight industries related to artificial intelligence as major beneficiaries.
“We continue to believe that key AI technology providers and memory chip manufacturers in Taiwan and South Korea will benefit from the recovery in global tech orders and overall AI-related positive factors,” UBS analysts wrote in a recent report.
Chip manufacturing stocks in Taiwan and South Korea, such as TSMC and SK Hynix, have seen valuations rise sharply over the past year due to increased AI demand.
Geographically, UBS expresses a more favorable view on China and South Korea. They expect that the Chinese market will particularly benefit from policy support, especially as Beijing takes measures to stabilize the real estate market and boost economic activity.
“The recent trend of earnings expectation revisions has also turned positive, and we believe this trend could continue if Chinese consumer recovery further extends. Key risks to watch include U.S.-China tensions and currency fluctuations,” UBS analysts wrote.
China’s SSE Shenzhen 300 Index and SSE Composite Index rebounded significantly between February and May due to optimism about Beijing's stimulus measures. However, this rebound mostly dissipated in June, and recently, Chinese stocks have weakened again due to concerns over a trade war with the European Union.
