Taiwan and China are among emerging markets that may outperform in the second half of this year, JPMorgan Chase & Co said, as inflation concerns ease.
Share prices in China and other countries that investors have shunned in the first half may “move rapidly,” JPMorgan analysts led by Adrian Mowat said. An Emerging Portfolio Fund Research survey at the end of last month showed more fund managers had cut their North Asian holdings, the brokerage said, suggesting a recovery might be around the corner.
ROTATION
“We are forecasting significant country and sector rotation in the second half of 2008, driven by lower headline inflation and a poor risk/reward profile for commodity and energy stocks,” the JPMorgan analysts wrote in a July 26 report. “Countries such as China and Mexico are ahead of the curve in dealing with inflation.”
The MSCI Emerging Markets Index fell 13 percent in the first six months of this year, while China’s CSI 300 Index dropped 48 percent during the period, the second-worst performance among the 83 global benchmarks tracked by Bloomberg. Investors sold Chinese shares on concern at soaring consumer prices, which increased in February at the fastest pace in 12 years, and that a slowing economy will damp profits.
LOSING WEIGHT
The number of investors that were “underweight” in China outnumbered those “overweight” in the country by 21, climbing from 16 the previous month, JPMorgan said, citing a survey of 45 emerging-market fund managers. The number for Taiwan increased by one to 20. The survey also showed that Russia was the favorite market among the investors.
“Positions in China and Taiwan are supportive of our overweights in those markets,” the analysts said.
The brokerage has “overweight” recommendations for the two countries, along with Mexico, Thailand and the Philippines.
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