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Banks (Finance)

Emerging Markets Equities Poised for Rebound as JP Morgan Upgrades View

Strategic Insights

— 1 min read

After years of underperformance, JP Morgan's upgrade to an overweight rating on emerging market (EM) equities suggests a shift in the tide. The bank's equity strategy team, led by Mislav Matejka, believes EM assets now offer better return potential than their developed counterparts, citing a mix of macroeconomic, political, and valuation drivers. This change in sentiment comes as the US has cut proposed tariffs on Chinese imports, and a weaker US dollar, if it materialises, could provide a boost to emerging markets. Additionally, interest rate dynamics and the potential for a dovish pivot from the Federal Reserve later this year could support EM performance. In China, the bank sees scope for recovery in the technology sector and values emerging markets' attractive valuations, with EM stocks trading at 12.4 times forward earnings compared to 19.1 times for developed markets.

Key Takeaways:

  • JP Morgan has upgraded its view on emerging market equities to overweight, citing better return potential than developed markets.
  • Geopolitics, including the US cutting proposed tariffs on Chinese imports, may be restoring confidence in EM assets.
  • A weaker US dollar could provide a boost to emerging markets, as history has shown EM stocks trading inversely to the dollar.
  • JP Morgan expects interest rate dynamics to support EM performance, with a potential dovish pivot from the Federal Reserve later this year.
  • In China, the bank sees scope for recovery in the technology sector, driven by government support and attractive valuations.
  • Emerging markets are trading at 12.4 times forward earnings, compared to 19.1 times for developed markets.
  • Global investor exposure to emerging markets remains low, offering further room for inflows.
  • JP Morgan is particularly positive on China, India, and Brazil, and continues to avoid autos, luxury goods, and energy.

Statistics:

  • Emerging market equities have underperformed developed market shares by around 40% since 2021 (JP Morgan).
  • US bond yields could rise in the short term due to inflation and fiscal policy (JP Morgan).
  • A softer dollar could ease funding pressures and support asset prices, historically trading inversely with EM stocks (JP Morgan).
  • EM stocks are trading at 12.4 times forward earnings, compared to 19.1 times for developed markets (JP Morgan).

Sources:

  • [JP Morgan's equity strategy team]
  • [Mislav Matejka, Head of Equity Strategy at JP Morgan]

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