JP Morgan upgrades emerging market equities as Sino-US trade war eases

JP Morgan upgraded its rating on emerging market equities to ‘overweight’ from ‘neutral’ on Monday, citing easing US-China trade tensions and a softer dollar.

Last week, the US and China agreed to a 90-day tariff reduction, with the US cutting duties on Chinese goods to 30 per cent from 145 per cent and China lowering tariffs on US imports to 10 per cent from 125 per cent, fuelling hopes of easing global trade tensions.

“De-escalation on US-China trade front reduces one significant headwind for EM equities,” JPM analysts said in a note, adding that the stocks would be further helped by a weakening of the greenback in the second half of this year.

JP Morgan remains positive on India, Brazil, the Philippines, Chile, the UAE, Greece and Poland within emerging markets, and sees a promising opportunity in China, particularly in technology stocks.

“While this is unlikely to be the end of trade noise, we think that the worst of it is likely behind us,” the Wall-Street brokerage added.The MSCI emerging markets stock index is up 9.0 per cent so far this year, as confidence in US assets, including the safe-haven dollar, has weakened amid concerns over President Donald Trump’s erratic and aggressive policies.

The dollar index is down 7.5 per cent so far this year.EM equities have lagged developed markets by a cumulative 40 per cent since 2021, according to the brokerage.Stock valuations now look attractive as they trade at 12.4 times its 12-month forward earnings compared to developed markets’ 19.1, JPM said.