LIVE MARKETS-JPM upgrades "accidental beneficiary" EM stocks

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JPM UPGRADES "ACCIDENTAL BENEFICIARY" EM STOCKS

Emerging markets stocks could be a potential "accidental beneficiary" of the U.S. growth scare, say JP Morgan equity strategists, who upgrade the space to neutral from underweight.

They cite several reasons, including a softer U.S. dollar, EM's recent poor run, delayed tariff implementation, China stimulus hopes and a potentially more dovish Fed as reasons for EM looking rosier.

"Our view remains that the growth scare risks will keep returning," they say, noting that this would keep a cap on bond yields, while, unlike in recent market jitters the dollar has been weakening rather than strengthening.

In addition, they highlight that EM vs DM performance is basically flat on the year, flagging their previous prediction that EM would benefit from tariffs being pushed out again - something that recently transpired.

"In the longer term context, EM had 4 very weak years, underperforming the DM in each, cumulatively by 40%."

"We take advantage of past poor run to upgrade EM vs DM from UW to Neutral"

"...we stay bullish China Technology exposure, and think that EM ex China will also trade better, partly on likely increasing policy stimulus."

So why not overweight the space?

The strategists say trade uncertainty is a wild card and the extent of the growth scare is unclear.

(Lucy Raitano)

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