EM, value outperformance may have more room to run: J.P. Morgan

[emerging market]
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The current supportive growth-inflation backdrop is expected to keep emerging markets (EEM [https://seekingalpha.com/symbol/EEM]) and value stocks (IUSV [https://seekingalpha.com/symbol/IUSV]) outperforming this year as equity leadership broadens, J.P. Morgan wrote in a note to clients Monday.

Analyst Mislav Matejka pointed to positive corporate earnings and upward revisions, as well as improving momentum in national manufacturing activity, with "no material signs of overheating or increasing inflationary pressures," he wrote. "We are staying with the view that inflation is set to be well behaved, on the back of slowing wage growth, reducing services inflation and Brent price which is unlikely to move up much, absent any transitory geopolitical escalation."

Even with the recent upside surprises across manufacturing, payrolls and industrial production, long bond yields (US10Y [https://seekingalpha.com/symbol/US10Y]) (US30Y [https://seekingalpha.com/symbol/US30Y]) have moved lower in the last few weeks, as fed funds futures traders price in nearly as much easing as they did at the start of the year." The 10-year tenor is hovering around its lowest level year-to-date at just over 4%.

"In a nutshell, this is the Goldilocks setup we were hoping for," said Matejka. If the above-described backdrop shows continued traction, together with USD (DXY [https://seekingalpha.com/symbol/DXY]) trading on the weaker side, within the market we reiterate our call that there will likely be a broadening in leadership."

Within equities, the analyst still prefers value over growth and small caps (IJR [https://seekingalpha.com/symbol/IJR]) over large caps (SPY [https://seekingalpha.com/symbol/SPY]), arguing that the rotation beyond last year's narrow leadership has further room to run. Regionally, he maintained an overweight rating on emerging markets.

Meanwhile, two of last year's standout performers — defense and banks — are unlikely to deliver another year of meaningful outperformance in 2026, he added, "despite the still solid fundamentals for both groups."

Emerging Market ETFs: (IEMG [https://seekingalpha.com/symbol/IEMG]), (VWO [https://seekingalpha.com/symbol/VWO]), (EEM [https://seekingalpha.com/symbol/EEM]), (SPEM [https://seekingalpha.com/symbol/SPEM]), (SCHE [https://seekingalpha.com/symbol/SCHE]), and (AVEM [https://seekingalpha.com/symbol/AVEM]).

Value ETFs: (VTV [https://seekingalpha.com/symbol/VTV]), (VBR [https://seekingalpha.com/symbol/VBR]), (EFV [https://seekingalpha.com/symbol/EFV]), (IWS [https://seekingalpha.com/symbol/IWS]), (AVUV [https://seekingalpha.com/symbol/AVUV]), (DFUV [https://seekingalpha.com/symbol/DFUV]), (DFIV [https://seekingalpha.com/symbol/DFIV]), (IJJ [https://seekingalpha.com/symbol/IJJ]), (SPYV [https://seekingalpha.com/symbol/SPYV]), and (CGDV [https://seekingalpha.com/symbol/CGDV]).

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