2009-05-18 02:15:03.542 GMT
By Chen Shiyin
May 18 (Bloomberg) -- Russian and Indonesian stocks were upgraded at JPMorgan Chase & Co. as a recovery in the global economy and investors’ risk appetites drives further gains in emerging market equities. The brokerage downgraded China.
Russia was raised to “neutral” while Indonesia was upgraded to “overweight” within JPMorgan’s global emerging- market portfolio, analysts led by Adrian Mowat said. They cut China to “neutral” after its gains this year and lowered South Africa and Malaysia to “underweight.”
The MSCI Emerging Markets Index slipped 0.8 percent to 702.24 today, after a 24 percent rally this year. Developing countries make up all 10 of the best-performing markets this year, with Peru, Russia and China leading gains. “These asset allocation changes are in the context of a MSCI Emerging Market 900 index target,” the strategists said. “We expect all emerging markets to generate positive returns.”
Mowat, JPMorgan’s Hong Kong-based chief Asia and emerging-market strategist, and his team said last month the MSCI index for developing countries will rise to 900. That would be the highest level since Sept. 8, a week before New York-based Lehman Brothers Holdings Inc.’s bankruptcy froze global credit markets and sparked an exodus from emerging-market assets.
Russia, Indonesia
Russian stocks, previously rated “underweight” at JPMorgan, are benefiting from the government’s growth policies, a contracting risk premium and the increasing likelihood of earnings upgrades by analysts, the brokerage said in the note.
The RTS Index has jumped 48 percent this year, the second-best performer among the 92 global stock indexes tracked by Bloomberg. The ruble-denominated Micex Index has surged 62 percent in 2009.
Indonesia’s Jakarta Composite Index has climbed 29 percent during the same period. The market was upgraded from “neutral” because of the improving commodities and currency outlook, JPMorgan wrote.
Gross domestic product expanded 4.4 percent in the three months to March 31 from a year earlier as local spending accelerated, the statistics bureau said on May 15. That’s the fastest pace in Southeast Asia.
Still, JPMorgan has turned less optimistic about on China, lowering its rating on the market from “overweight.” The MSCI China Index has gained 21 percent and this month touched the highest level since September, just before Lehman’s bankruptcy.
The Shanghai Composite Index, which tracks mainland-listed shares, has gained 45 percent, the world’s third-largest advance.
Reallocating Capital
“As China discounts its economic recovery, we are reallocating capital to other North Asian economies that are later in the recovery phase,” the JPMorgan analysts wrote.
The brokerage is also downgrading stocks in South Africa and Malaysia from a previous recommendation of “neutral,” citing the “low beta” in the two markets.
JPMorgan is joined by Templeton Asset Management Ltd.’s Mark Mobius and HSBC Private Bank in predicting a rebound in emerging market shares.
“I would buy all emerging markets going forward,” Arjuna Mahendran, Singapore-based chief investment strategist for Asia at HSBC Private Bank, which oversees $494 billion in assets, said in a Bloomberg Television interview today. “The world has
turned on its head and the emerging markets are looking decidedly more sound than the developed markets.”
For Related News and Information:
Top stocks stories: TOPD
Most-read emerging market news: MNI EM
World equity index rankings: WEIS
Emerging market monitors: EMMV
--With assistance from Bernard Lo in Hong Kong and Momoe Ikeda-
Chelminska in Tokyo. Editors: Linus Chua, Reinie Booysen
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