J.P. Morgan: Stay Bullish on Emerging Markets

Overview

This research report is the minutes of J.P. Morgan's morning meeting, with the core view being 'Stay bullish on emerging markets (EM) over developed markets (DM).' The institution notes that despite EM's long-term underperformance over the past decade, current valuations, liquidity, positioning, and fundamentals show positive signals, particularly in areas like AI, gold, and manufacturing.

Core views

The institution believes EM has stronger upside momentum compared to DM. First, the AI sector is becoming a new engine for global economic growth, and EM-related companies in this sector have lower valuations and further upside potential. Second, the Fed's hawkish stance may already be overly priced in, with expectations of a reversal in the next six months, which would weaken the dollar and benefit EM. Third, China's economic activity shows signs of recovery, and the upcoming Trump-Xi meeting could further boost market confidence. Fourth, tensions in Iran are easing, reducing geopolitical uncertainty and improving risk appetite. Lastly, EM's overall low valuations, light investor positioning, and increasing capital inflows suggest long-term investment value, particularly in mining, semiconductors, and industrials.

Analysis framework

The institution analyzes EM prospects from multiple dimensions, including macroeconomics, market sentiment, industry structure, and valuation levels. It starts by examining the valuation and earnings potential of the AI sector, highlighting the better value in EM-related AI stocks. It then combines dollar trends and Fed policy expectations to predict a potential shift toward a looser market environment. Next, it analyzes China and Middle East geopolitical situations and their impact on market sentiment. Finally, it validates EM's attractiveness through valuations, positioning, and capital flows, forming a complete analytical logic chain.

Methodology notes

• Industry Analysis FrameworkSupply-demand framework

  Supply-Demand Framework

  The institution notes that the AI memory sector faces short-term supply shortages, with supply lagging behind demand growth, giving related stocks short-term upside momentum, as valuations have not fully reflected this trend.

• Cycle and Sentiment FrameworkInflection Point Analysis

  Inflection Point Analysis

  The institution believes China's economic activity may be at a recovery inflection point, and combined with expectations of high-level U.S.-China interactions, future economic data could improve, supporting EM sentiment.

• Macroeconomic frameworkInterest rate parity

  Interest Rate Parity

  The dollar exchange rate is influenced by global interest rate differentials and market sentiment. If U.S. rate expectations decline, a weaker dollar would enhance the appeal of EM assets.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ANGLOGOLD ASHANTI (PTY) LTD (US.AU)

  As a representative gold sector company, it benefits from rising EM demand for precious metals and expectations of stable gold prices

Key data

• EM P/E Relative to DMHistorically low levelsCurrent EM valuations are significantly lower than DM, offering high value for money
• EM Market Absolute 12x Forward P/EWell below market averageEM's overall P/E is at historically low levels, with high valuation safety margins
• Long-Term USD Trading Premium10-15%The dollar appears expensive over the long term; a weaker dollar would benefit EM

Impact & implications

For related industries and companies, this view suggests significant EM valuation repair potential, particularly in structural opportunities in AI, gold, and industrial manufacturing. Investors should focus on EM companies with high growth and low valuations, especially leaders in mining, semiconductors, and industrials.

Risks

• Escalating geopolitical risks could dampen market sentiment
• A slower-than-expected Fed policy shift could keep the dollar strong
• Internal EM economic structural issues may weaken growth momentum

What to watch

• China's GDP growth and economic activity data
• Fed policy moves and USD index changes
• Middle East developments and oil price fluctuations
• EM capital inflows and positioning changes