Sep 3, 2010 4:59 AM GMT
Emerging-market stocks may outperform for the rest of the year as below-trend growth and low inflation in developed nations drive inflows to “healthy” developing economies, said JPMorgan Chase & Co.
Japan grew at a lower-than-expected 0.4 percent pace in the second quarter and U.S. expansion slowed to 1.6 percent, adding to speculation that the recovery in two of the world’s three largest economies may be faltering. Among emerging markets, South Korea’s central bank said today the
economy expanded 7.2 percent during the period, while India and Indonesia have in the past month reported growth of more than 6 percent.
“Today’s economic conditions are relatively favorable for emerging economies and markets,” JPMorgan analysts led by
Adrian Mowat wrote in a report today. “Sub-trend developed economic growth is not a risk to emerging economic growth.”
The faster pace of expansion has helped the
MSCI Emerging Markets Index climb 1 percent this year, extending last year’s record 75 percent rally. The MSCI World Index has declined 4.2 percent this year.
While investors pulled a net $7.1 billion from equity funds globally in the week to Aug. 25, emerging-market stock and bond funds continued to post net inflows, according to Cambridge, Massachusetts-based EPFR Global. Developing-nation equity funds have attracted about $37 billion this year, following last year’s record $83 billion of inflows, according to Morgan Stanley.
‘Melt Up’
Fund flows to emerging markets will “continue as investors seek carry and growth,” JPMorgan’s Mowat said. “The result is that emerging markets
melt up.”
The brokerage raised its recommendation on
Malaysian stocks to “overweight,” citing a strengthening ringgit and “robust” domestic demand and credit growth. It cut
South Korean shares to “neutral” from “overweight” after lowering its recommendation on the banks last week amid concerns over the quality of their assets.
Emerging Stocks to Outperform as Faster Growth Lures Funds, JPMorgan Says - Bloomberg
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