Across the region, Morningstar's ratings show the largest proportion of five-star stocks in the tech and consumer cyclical sectors, while stocks involved in basic materials have the worst ratings.
For the brave investor, bottom-fishing opportunities are starting to surface given the recent significant pullback. Speaking at Morningstar's 2Q2025 Asia investment outlook webinar on April 16, Wang says communication services and technology names had the biggest increases in rating. "These sectors tend to sell off during times of volatility first and now they represent buying opportunities on the recovery side."
Looking back at US President Donald Trump's first term, particularly when he imposed tariffs on China in 2018, the technology and Singaporean REIT (S-REIT) sectors were the best performers in the following year's recovery.
The rally was also "broad-based" and included communication services and consumer cyclicals, notes Wang, and "all have a significant proportion of five-star stocks".
See also: Fidelity, Goldman find tariff haven in Asian consumer stocks
This time, however, S-REITs could underperform as the US interest rate outlook is uncertain, says Morningstar.
Trump's "Tariff 2.0" is "slightly different", says Wang, because of its global focus beyond China. "We don't expect Singaporean REITs to be as insulated this time, and we don't think that recovery is going to be as great."
There are many "different narratives" on how best to navigate the market "given the mess that Trump has created here", adds Wang. "Our message is that based on the history of the first trade war and other corrections, it's important to not panic-sell and [to] pounce on quality names that are undervalued."
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These "top picks" by Morningstar are "usually five-star, wide-moat names" with high barriers of entry, says Wang. "We think that investors can either wait for the dust to settle, [and if] an investor has the risk appetite to do so, to kind of buy these significant undervalued opportunities here."
Morningstar's top cyclical picks
The overwhelming majority of Morningstar's 16 top picks from the cyclical sector are names listed on the Stock Exchange of Hong Kong. The sole Singapore-listed counter is Keppel REIT, and Morningstar has a five-star rating on the commercial REIT with a $1.16 fair value estimate, which is around 38% above its current unit price.
"We do like Keppel REIT as a Singaporean REIT, if investors do go that route; it was one of the most resilient sectors during the first trade war," says Wang. "Again, things might play out a little differently just because tariffs are more global. But, you know, it is a five-star name in our top picks, given that vacancy rates are still low and pricing is still going up."
Keppel REIT's portfolio comprises interests in 13 prime commercial assets across Singapore, Sydney, Melbourne, Perth, Seoul and Tokyo.
Its assets in Singapore are a 79.9% interest in Ocean Financial Centre, a one-third interest in Marina Bay Financial Centre (comprising Towers 1, 2 and 3 and Marina Bay Link Mall), a one-third interest in One Raffles Quay and a 100% interest in Keppel Bay Tower.
Keppel REIT's net property income rose 13.3% y-o-y in 1QFY2025 ended March 31, with portfolio occupancy at 96% and rental reversion at 10.6%.
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Another Singapore-linked name on Morningstar's top picks is Nasdaq-listed Grab Holdings, with a four-star rating and a US$5.10 ($6.70) fair value estimate, which is some 20% above its trading price.
In addition, Wang thinks Hong Kong-listed Chinese e-commerce firm JD.com is "attractive" given China's commitment to provide trade-in subsidies for appliances. "This feeds off of our theme that China is committed to providing fiscal stimulus to offset any impact on the trade war."
Dual-listed in New York and Hong Kong, Shanghai-based restaurant company Yum China also "trades in five-star territory", says Wang, as Morningstar expects China consumers to continue "downtrading", or changing their purchasing behaviour towards cheaper alternatives.
Morningstar also prefers Hong Kong-listed Geely Automobile compared to its peers, and Wang praises the auto manufacturer for its "strong monthly sales momentum and profitability recovery".
Some names among the list have risen from three to four stars, such as Japan's Sumitomo Mitsui Trust and Hong Kong's HSBC. "These banks have very good balance sheets, and despite the fact that there's a lower chance of interest rates increasing, they still have very good balance sheets [and] they have good long growth."
Morningstar's top defensive picks
The consumer defensive and utilities sectors were two of the three most resilient sectors during Trump's first trade war, says Wang.
While these names provide lower upside during market recovery, they do have lower volatility and may suit investors who may be more risk-averse amid the current uncertainty, he adds.
Prior to the tariff escalation between US and China, Wang says "pockets of stabilisation" had emerged in consumer defensive sectors, and "there were some signs that prices no longer declined".
Among nine defensive top picks, Morningstar highlights Shanghai-listed Kweichow Moutai and Hong Kong-listed Budweiser Brewing Company APAC.
While both baijiu and beer may take longer to recover as consumers downtrade, Wang says his team prefers these two companies given the "long-term premiumisation trend" for consumer products in China.
ST Engineering, TSMC among top picks
Wang also highlights nine relatively popular stocks in "economically sensitive sectors", including Taiwan Semiconductor Manufacturing Company (TSMC), Japan's Sony, and Singapore's ST Engineering.
The "most attractive name" in the list is TSMC, says Wang, which is trading at 0.46 times price over fair value estimate. "We believe it has one of the widest moats in our coverage, given its lead on leading-edge chips, and it has a very high barrier to entry."
Morningstar has a five-star rating on TSMC with a target price of NTD1,800 ($72.50), more than double its current traded price.
Technology tends to see the sharpest decline during volatility but is an outperforming sector under recovery, notes Morningstar. "The AI theme still remains a long-term play here and a secular play. We're bullish on that," says Wang.
Other attractive names with good balance sheets include Hong Kong-listed communication services firms Tencent and NetEase, says Wang, while the Hong Kong-listed shares of state-owned China Unicom "provides a dividend-yielding option for a five-star stock".
Tables: Morningstar
