 "JP Morgan")
India remains a relatively safe-haven amid trade-related uncertainty, wrote analysts at JP Morgan in a recent note, and maintain an ‘overweight’ stance on Indian equities in this backdrop.
Besides India, Korea, Brazil, United Arab Emirates (UAE), Poland and Philippines are the other emerging markets (EMs) where JP Morgan has maintained an ‘overweight’ stance.
“Falling inflation, enhanced system liquidity and lower borrowing is likely to boost growth. Timely demand stimulus and support to urban household balance sheet bodes well. Recovery in rural economy further aided by a favourable monsoon. India is a relative safe haven amid trade uncertainty. It is expected to have the highest 2025e GDP (gross domestic product) growth in JPM Global universe,” their analysts wrote in a recent note.
At a broader level, EM equities, JP Morgan said, has had four consecutive years of underperformance relative to DM, underperforming cumulatively by 40 per cent since 2021.
"This is true ex-China as well. We took advantage of this multi-year underperformance to upgrade EM to outright overweight in May, this follows our upgrade to Neutral back in March," the report said.
EM equities, analysts at JP Morgan suggest, have historically traded inverse to the US dollar and should be helped if the dollar stays weak. The US dollar, they said, is not performing in the typical risk-off fashion and has in fact weakened on tariff announcements. Any strengthening in EM FX would support the EM trade, they said.
“We expect better EM performance this year on likely peak in trade headwinds vs China, on potentially weaker USD and on more China stimulus. The region looks cheap and under-owned. Within EM, we continue to be bullish on China Tech,” the JP Morgan note said.
Among regions, Eurozone equities, JP Morgan believes, will likely not decouple from the US, but may not underperform. Fiscal expansion by Germany, they believe, is a clear support, trade negotiations need to show progress, and a Russia-Ukraine ceasefire is the wildcard.
“Defense sector could see some bouts of profit taking, but we recommend staying structurally long the sector. We are tactically neutral Eurozone versus the US, but one should use weakness in EURO STOXX 50 index (SX5E) to add on a one-two year view,” they said.
Leadership change
Style-wise, JP Morgan continues to believe that in 2025 there will be a change in leadership. Tech fundamentals, they believe, are staying strong, but AI (artificial intelligence) trade should be broadening. Historically, winners from the technological disruption would not be the incumbents, they were the outsiders, the note said.
Within Tech, they had recommended in July 2024 that investors exit stocks of hardware-related companies and semis and into Software, and reiterate this stance again now.
"We have been overweight 'growth' versus 'value' style and overweight large versus small-caps for years, but have in summer 2024 advised to neutralize 'growth' overweight, given stretched positioning, price relatives and valuations at highs, extreme retail ownership and elevated expectations," JP Morgan said.
