J.P. Morgan remains bullish on emerging market equities amid policy shifts

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J.P. Morgan reiterated its bullish stand on emerging market (EM) (NYSEARCA:EEM [https://seekingalpha.com/symbol/EEM]) equities amid a robust year-to-date performance, favorable macro tailwinds and a pickup in China A-shares.

EM equities (NYSEARCA:EEM [https://seekingalpha.com/symbol/EEM]) have been up 17.8% YTD in USD terms, beating developed markets (DM) by 660 basis points, making a sharp turn after they had lagged developed markets by over 200% since 2010.

"As of last year, positioning on EM was very light, with China seen as a clear structural UW for most investors. This has still not changed much, with the majority remaining skeptical on China. Notably, the U.S. stepped back from the brink in trade negotiations with China, which is a positive," J.P. Morgan's Mislav Matejka said.

Matejka believes a softer dollar outlook and potential Federal Reserve rate cuts could help boost EM performance.

J.P. Morgan noted that while China's structural challenges, which include overcapacity, weak house prices, and deflationary pressures, remain, there have been some positives to look forward to.

"The negatives are very well accepted, though, and policy focus and the actions are changing, away from increasing regulations and towards boosting the private economy. This is why we argued last quarter that China domestic groups should perform better, too, when we upgraded EM," Matejka said.

Matejka said in terms of EM, China will continue to be in focus, and in the rest of EM, J.P. Morgan is bullish on India, Korea, and Brazil.

The bank also reiterated its double upgrade of Mining, given Miners were the best performing sector over the past month, and improving domestic activity in China may prove to be the next catalyst for the group

HERE ARE SOME EMERGING MARKET ETFS: (NYSEARCA:IEMG [https://seekingalpha.com/symbol/IEMG]), (NYSEARCA:VWO [https://seekingalpha.com/symbol/VWO]), (EEM [https://seekingalpha.com/symbol/EEM]), (NYSEARCA:SPEM [https://seekingalpha.com/symbol/SPEM]), (NYSEARCA:SCHE [https://seekingalpha.com/symbol/SCHE]), and (NYSEARCA:AVEM [https://seekingalpha.com/symbol/AVEM]).HERE ARE SOME CHINA ETFS: (KWEB [https://seekingalpha.com/symbol/KWEB]), (PGJ [https://seekingalpha.com/symbol/PGJ]), (CQQQ [https://seekingalpha.com/symbol/CQQQ]), (FXI [https://seekingalpha.com/symbol/FXI]), (GXC [https://seekingalpha.com/symbol/GXC]), (MCHI [https://seekingalpha.com/symbol/MCHI]), (FLCH [https://seekingalpha.com/symbol/FLCH]), (CNYA [https://seekingalpha.com/symbol/CNYA]), (ASHR [https://seekingalpha.com/symbol/ASHR]), and (YINN [https://seekingalpha.com/symbol/YINN]).

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