JPMorgan Chase & Co. upgraded equities in Turkey, Peru and South Africa, saying the Federal Reserve's decision to keep monetary stimulus intact would spur emerging-market stocks for the rest of the year.
Investors should add domestic cyclical stocks listed in Istanbul, Johannesburg and Mumbai, which underperformed their benchmarks since June, JPMorgan analysts including Adrian Mowat said in the e-mailed report dated September 21. The New York-based investment bank downgraded Russian stocks on falling oil prices.
The MSCI Emerging Markets Index jumped 2.2 percent the most in more than two months, on September 19, the day after the Fed refrained from trimming its $85 billion monthly quantitative- easing program.
Turkey, South Africa and India, which are facing among the biggest current-account deficits in developing countries, “are the main beneficiaries” of the move, JPMorgan said. Turkiye Halk Bankasi AS and ICICI Bank Ltd. are among the lender's top-10 emerging stock picks.
“The Fed is allowing investors to 'temporarily' relive the happy days of QE-driven EM bonds and equities,” JPMorgan said in the report. “The switch to bullish EM equities was built on bearish positioning and improving cyclical data in EM.”
The investment bank upgraded Turkey and Peru to overweight, joining Mexico, Thailand, the Philippines and Taiwan. South Africa was raised to to neutral and Malaysia was cut to neutral. The emerging-markets gauge was little changed as of 11:27 a.m. in London.
Lower oil prices are a downside risk for Russia, JPMorgan said, lowering the country and Colombia to underweight, on par with Brazil. The Micex Index fell for a second day in Moscow, losing 0.7 percent to 1,466.85. Crude oil in New York has fallen 2.5 percent this month, trimming the quarterly gain to 8.6 percent.
Equities in Thailand and the Philippines should advance, along with Indonesia, where the “key risk” stems from an “overvalued” rupiah and declining foreign-exchange reserves, according to JPMorgan. The investment bank lowered Taiwanese and Korean financial services stocks to neutral from overweight after higher interest rates helped them outperform. The Kopsi Finance Index has gained 5 percent this year in Seoul, compared with a 0.6 percent increase for the broader measure.
JPMorgan also advised investors to “stay away from policy- risk sectors that are value traps,” including Chinese financial companies, Brazilian banks, Indian materials and energy companies and utilities in various countries. -Bloomberg