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 appetite 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, said analysts led by Adrian Mowat. They cut China to “neutral” after a 20 percent gain this year and lowered South Africa and Malaysia to “underweight.”
JPMorgan last month said the MSCI Emerging Markets Index will rise to 900, the highest level since September, when Lehman Brothers Holdings Inc.’s bankruptcy sparked an exodus from emerging-market assets. The measure has rallied 25 percent this year to 709.38 and developing markets make up all 10 of the best performers in 2009, with Peru, Russia and China leading gains.
“The world has turned on its head and the emerging markets are looking decidedly more sound than the developed markets,” 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. “I would buy all emerging markets going forward.”
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.
Russia, Indonesia
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 28 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, Indonesia’s statistics bureau said May 15. That’s the fastest pace in Southeast Asia.
Still, JPMorgan has turned less optimistic about China, lowering its rating on the market from “overweight.” The MSCI China Index has gained 20 percent this year and this month touched the highest level since September, just before Lehman’s bankruptcy. The Shanghai Composite Index, which tracks mainland- listed shares, has added 43 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 countries, which may indicate that they fluctuate less when global markets rise and fall.
Templeton Asset Management Ltd.’s Mark Mobius has also predicted a rebound in emerging market shares.
Stocks in developing countries may “break out” into a bull market at the end of the year as falling interest rates and easing inflation make equities more attractive, Mobius, who helps oversee $20 billion in emerging-market assets, said in a May 4 interview.
To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net
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