HSBC says emerging markets could prove to be relatively “less vulnerable” as President-elect Donald Trump proceeds with raising tariffs on foreign goods in 2025.
EMs typically have better growth dynamics than the developed markets which justifies a “small overweight” in their stocks.
The investment firm is particularly bullish on two names: XP and Cemex, each of which, it’s convinced, could rally over 50% next year.
Let’s take a closer look at why HSBC is bullish on these two emerging markets stocks.
XP Inc (NASDAQ: XP)
XP has been cut nearly in half in 2024 but HSBC analysts expect the coming year to be a different story altogether. Their $25 price target suggests a whopping 90% upside from current levels.
HSBC finds XP stock “quite correlated to the policy rates cycle in Brazil” as it has a multitude of offerings, including equities, real estate investment trusts, fixed income, and pension plans.
The investment firm expects the Brazilian firm to benefit as the country’s central bank slams the breaks on raising interest rates in 2025.
HSBC likes XP shares also because the company “continues to show resilient earnings performance.” Its per-share earnings have grown at an estimated compound annualised rate of about 12% between 2022 and 2024.
In November, the Brazilian company said its revenue went up 4.0% on a year-over-year basis in its third fiscal quarter.
A lucrative dividend yield of 4.86% makes XP stock all the more exciting to own for the long term, according to HSBC analysts.
Cemex SAB de CV (NYSE: CX)
HSBC does expect the new US government to weigh on demand for Cemex products.
But the investment firm still recommends owning shares of the Mexican firm as the market is a bit too pessimistic on Cemex.
In fact, the US operations of this building materials company could benefit as Donald Trump raises import tariffs on other countries. That segment will likely make up 35% of Cemex’s EBITDA in 2025, according to HSBC.
Cemex stock is currently going for 4.6 times its estimated enterprise value to EBITDA for 2025 which translates to a 35% discount compared to the company’s 10-year historical average of 7 times.
Holcim – its primary global competitor is also trading at 8.6 times EV/EBITDA at writing.
“With its strong pricing power and exposure to US infrastructure spending, we see significant rerating potential as Mexican macro concerns ease,” the investment firm told clients today.
HSBC recommends buying Cemex shares and sees upside in them to $9 which indicates potential for a more than 60% upside from current levels.
Much like XP Inc., Cemex is also a dividend-paying stock, with a yield of 1.12%.
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