JP. Morgan Global Research estimates Emerging Market (EM) equities to return 9% in 2024
- Stock Market Today: JP Morgan Global Research estimates Emerging Market equities to return 9% next year, driven primarily by earnings growth, as lower US equity markets become a headwind for multiple expansion.
J.P. Morgan Global Research estimates Emerging Market (EM) equities to return 9% next year (in 2024), driven primarily by earnings growth, as lower US equity markets become a headwind for multiple expansion.
In its Global Equity outlook report for 2024, while J.P. Morgan analysts said that EM equities behave as an asset class requiring market timing skills for in and out, tactical rather than strategic allocation and next year looks to be no different.
They expect a volatile 2024, driven by a challenging global macro picture; they use more conservative earnings than consensus EPS (earnings per share) growth assuming no margin expansion and tempering risk of excessive growth in the Information Technology sector. Their EPS growth is around 10% versus consensus EPS growth ranges 13% plus to 18% plus for 2024 and 11% plus to 18%plus for 2025.
J.P. Morgan Global Research in its foreword to clients at the start of Global Equity market outlook 2024 highlighted that they started out 2023 with low expectations for global growth and elevated fears of recession, but China’s reopening, large fiscal stimulus in the US and Europe, and residual strength of US consumers stabilized growth. Various themes also sparked market optimism (e.g., AI, luxury goods, weight-loss drugs, expectation of Fed rate cuts, cryptocurrency, etc.) resulting in risk markets delivering broadly positive performance.
Now as we approach 2024, J.P. Morgan Global Research expects both inflation data and economic demand to soften, as the tailwinds for growth and risk markets are fading. Overall, they are cautious on the performance of risky assets and the broader macro-outlook over the next 12 months, due to building monetary headwinds, geopolitical risks and expensive asset valuations.
Though J.P. Morgan Equity Research expects Emerging Market growth to moderate slightly to near-trend in 2024. EM easing cycles will broaden in 2024, but rate cuts are likely to remain measured as policymakers balance high domestic real rates against tight global financial conditions. Solid EM macro fundamentals should provide a buffer in the event of a less benign 2024 US scenario, pointed out analysts at J.P. Morgan.
They use their risk budget to focus on endogenous investment cases (overweight India, Saudi Arabia and Mexico), gain indirect exposure to China GDP (Overweight Brazil, Thailand and Indonesia) and reinforce non-consensus call (tactical Overweight China)
Their Bottom Up Thematic includes Defensiveness via EM Dividend Nobles (consistent dividend paying stocks) and EM Value Creators (consistent value creators); Market Neutral via stocks that might benefit from energy transition and secular near shoring trends; Bull-Biased via stocks that would benefit the strongest from lower interest rates, indirect China exposure and stocks for bull / bear swings in the Broad .
“We have been cautious on EM versus developed markets in 2023 but believe that EM could deliver better returns in 2024 as Fed starts cutting rates”, said J.P Morgan. Tactically, they have a few weeks back advised to close shorts on Chinese equities, and on Miners, given an already poor performance, and some stimulus coming through.
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