JPMorgan Sees Earnings Drag for Major Emerging Stock Markets

Emerging-market stocks face fundamental headwinds as 2013 earnings revisions for most major “country sectors” are negative and growth in the four biggest economies is disappointing, according to JPMorgan Chase & Co.

“We remain concerned that earnings-per-share forecasts will continue to fall,” Adrian Mowat, Hong Kong-based chief Asia and emerging-market strategist at JPMorgan, wrote in a report dated May 18. While growth in gross domestic product is “low,” earnings per share are estimated to rise 16 percent this year after falling 4 percent in 2012, he said.

The year-to-date performance for emerging equities relative to the U.S. is the worst since 1995 and the worst on record against the world, Mowat said.

The MSCI Emerging Markets Index rose 0.2 percent at 12:30 p.m. in London, trimming this year’s decline to 0.7 percent. MSCI BRIC Index of equities from Brazil, Russia, India and China has dropped 1.1 percent this year. That compares with a 13 percent increase in the MSCI World Index of developed-country stocks and 17 percent jump in the Standard & Poor’s 500 Index.

JPMorgan has an underweight allocation for Russia, China, South Africa, Korea, Taiwan and Colombia, a recommendation to hold less than benchmark indexes. It’s overweight Turkey, India, Mexico, Indonesia, Malaysia, Thailand, the Philippines and Peru, according to the report.

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