London: JP Morgan Asset Management sees a 10-20% drop in emerging markets, as a result of the global stock slide that began last week, providing opportunities in Brazil and Turkey.
“In emerging markets, we expect a correction of 10-20%, and we’re half way there,” said George Iwanicki, global emerging market macro-strategist at JP Morgan Asset Management. He added that the stock market falls in the past four years had been driven by tightening fears in the US and regulatory action in China.
“If you buy the notion that catalysts are similar to those seen in the past, they (corrections) last five to six weeks from peak to trough.” The steep falls present chances to buy into some markets, he said.
“Attractive markets from a country perspective are Brazil and Turkey. If the correction goes further, we could see further corrective action that would be particularly notable in those markets and we would view that as a buying opportunity,” Iwanicki said.
On a fundamental basis, Taiwan and Korea were attractive, and buying opportunities were emerging in Indonesia, he said. MSCI’s main emerging stock market index lost 10% in five days starting 27 February, when Chinese markets tumbled on talks that the authorities would crack down on speculation.
“It’s a global market correction as opposed to the beginning of a bear market,” Iwanicki said. JP Morgan Asset Management has assets worth $1 trillion (Rs45 lakh crore) under management. Iwanicki was cautious on China and India. “China is rich compared to other emerging markets. In 2006, we saw strong Chinese markets and a very strong leadership from the banks, especially those who have had (an IPO) in the past 12-18 months.” “Some of the correction is due to valuations that had got relatively extreme.”
On India, Iwanicki said sustainability of 8% economic growth is questionable. India is priced for its macro-economic outcomes that assume benign long-term growth. “There are classic signs of macro-economic overheating.” Russian markets have boomed in recent years due to high oil prices, but have suffered some of the worst declines in the recent sell-off.
“Russia is creeping up the valuation rankings due to underperformance, first with the oil price falling and now with the market action of the past week or so,” said Iwanicki.
Among emerging market industry sectors, he said health care, utilities, consumer staples and IT were attractive, but was bearish on basic materials, noting that if the US growth slowed, the sector would underperform.