Emerging Asia and Pacific ex-Japan are up 9% and 2.4%, respectively, year to date. Cyclicals have outperformed defensive companies – the J.P.
Morgan Strategy Team defensive stock list has underperformed the regional index by 8% YTD. The major EM Asia markets of China, India, Korea, and Taiwan have outperformed. The question now is do we continue to maintain our positive view on equities and preference for early cyclicals? We do, and we believe investors should.
In this report we review valuations and previous post crash rallies. Our
conclusions are:
Today’s EPS is below trend EPS;
Markets are cheap;
Positive returns are the norm post a sharp recovery;
Valuations in EM trend rather than mean revert;
Sell in May works 50:50.
The key risks to our view are China’s growth recovery fades and/or the
stabilization in US retail sales proves temporary.
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