Investing.com — JPMorgan reiterated its bullish call on emerging market (EM) equities, citing five key reasons why the asset class may continue to outperform developed markets (DM) in the months ahead.
“We have last quarter turned bullish on EM equities, upgrading EM vs DM to OW, after years of a cautious stance,” JPMorgan analysts wrote, highlighting a 17.8% year-to-date return in EM equities in U.S. dollar terms, outperforming DM by 660 basis points.
1. EM stocks have significantly underperformed over the past decade. “EM had a terrible time for years, losing 55% relative since 2021 to the end of last year, and lagging DM by over 200% since 2010,” wrote the bank.
They stated that positioning remains light, particularly in China.
2. JPMorgan expects the U.S. dollar to weaken over the longer term, a historically positive backdrop for EM.
“The USD could bounce somewhat in the short term… but longer term the USD is likely to move lower still,” stated the analysts.
3. A more dovish Fed could support EM assets, according to the bank. “The Fed could turn more dovish, perhaps materially so, over the next year… 19 out of 21 EM central banks that JPM is following are expected to cut rates in 2H,” they said
4. JPMorgan believes that negative sentiment on China is priced in. “The negatives are very well accepted,” the note said, but “policy focus and the actions are changing… towards boosting the private economy.”
5. EM valuations remain compelling. According to the bank, “EM valuations remain very attractive, at 13x forward P/E, vs DM at 20x,” while “global investor positioning to EM is low, in particular to China.”
JPMorgan remains focused on China, citing domestic liquidity and government support, and is also bullish on India, Korea, and Brazil.
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