Investing.com — UBS said it was largely neutral on broader emerging market stocks amid heightened political volatility and limited upside potential from higher U.S. interest rates.
But the brokerage firm said it prefers technology stocks in emerging markets, noting that the sector has largely outperformed its counterparts in emerging markets in recent months, with sectors related to artificial intelligence expected to benefit the most.
“We continue to believe that key AI enablers and memory chip makers in Taiwan and South Korea will benefit from a combination of a rebound in global technology orders and overall AI-related tailwinds,” UBS analysts wrote in a recent note.
Chip maker stocks in Taiwan and South Korea, namely TSMC (NYSE:) and SK Hynix Company (KS:), saw a huge rise in valuation over the past year as it cited increased demand from artificial intelligence.
From a geographic perspective, UBS said it favors China and South Korea. Chinese markets in particular are expected to benefit from favorable political winds, especially as Beijing moves to stabilize the real estate sector and support economic activity.
“Earnings revision trends have also turned positive recently, which we believe could be sustained if China’s consumption recovery broadens. Key risks to watch include
UBS analysts wrote: US-China tensions and currency fluctuations.
The benchmark index and Chinese indices saw a stellar rebound between February and May, amid optimism about stimulus support from Beijing. But that rally largely faded in June, with Chinese stocks seeing fresh weakness in recent sessions on concerns about the trade war with the European Union.
South Korea is set to benefit from improved export activity, especially in the technology sector, while domestic manufacturing activity saw an improvement in May.