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 Sept. 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 Sept. 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 its 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 raised Turkey and Peru to overweight, joining Mexico, Thailand, the Philippines and Taiwan. South Africa was raised to neutral and Malaysia was cut to neutral. The MSCI gauge was little changed at 1:13 p.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 0.6 percent to 1,468.08. Crude oil in New York has fallen 3.1 percent this month, trimming the quarterly gain to 8.1 percent.
“Oil price is on thin ice given the receding threat of a military action by the U.S. and supply appears to be improving, particularly in Iraq and Libya,” JPMorgan said.
The U.S., France and the U.K. want a United Nations resolution this week that provides enforcement of the terms of the Sept. 14 Geneva accord between the U.S. and Russia to rid Syrian President Bashar al-Assad’s regime of chemical weapons.
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.