JP Morgan forecasts ‘significant correction’ for emerging market stocksPosted on 21 February 2013 with 1 comment from readers
Emerging market stocks have mainly lagged behind the stock market surge in major bourses since the beginning of the year and now face a ‘significant correction’, JP Morgan warned clients in a report published yesterday in Hong Kong.
Chief Asia and emerging market strategist Adrian Mowat said ‘fundamental and technicals are weakening’. As if on cue Chinese equities tumbled with the Shanghai Composite Index down three per cent today. Concern that China will take action to limit property price inflation was the immediate cause of the fall.
The MSCI Emerging Markets index has risen just 0.2 per cent this year compared with 4.9 per cent for the MSCI World Index. In the fourth quarter Bloomberg data showed 62 per cent of companies in emerging markets missing earnings estimates against 34 per cent in developed markets.
JP Morgan favors companies with a high return on equity and has overweight recommendations on shares in Turkey, India, Mexico, Indonesia, Thailand, the Philippines and Peru. The biggest omissions from this list are China, Brazil, Russia and South Africa.
But the US investment house is also recommending investors to short the emerging markets index to profit from this ‘significant correction’.
ArabianMoney would also note that if developed markets also now enter a correction phase, with chart signals now pointing to just such a development (click here) then emerging markets would also tend to fall and fall further to the downside. Their underperformance earlier in the year was indeed another warning signal for the major bourses.