Winning in a Weaker World

- "Weak developed economic growth is proving favorable for Asia and EM. Capital flows are strong. EM and APxJ are outperforming developed equity markets."
- "The key changes are to upgrade Malaysia to OW, downgrade Korea to Neutral from OW and sell business discretionary."
- "In this report we describe our base case for the balance of 2010:
1) Sub-trend DM economic growth and low core inflation
2) G3 interest rates on hold
3) Healthy EM and Asian growth (2010 6.9% and 2011 5.5%)
4) EM inflation near central bank target zone
5) China’s economic rebalancing is positive for sustainable growth but a risk to commodity investors and large SoEs.
6) Capital flows to EM continue as investors seek carry and growth
The result is that EM markets melt up."
- "Within APxJ, autos in Korea, semiconductors in Korea and Taiwan, and industrials in Korea and China offer cheap growth. These sectors had strong earnings momentum in the last three months. Consumer staples offer high growth but are expensive (see page 5)."
- "EM weighted and median 2011 EPS growth are 17%. This is 5% higher than the 2011 nominal GDP growth forecast of 12%. Material and financial sectors’ earnings are forecast to grow in excess of 20% while IT and telecom have the lowest growth forecasts at 10-11%. Brazil steel and Russian oil & gas contribute 20% of 2011 EPS growth. The median EPS growth for Taiwan tech is 19%."
- "The main risks to our view are a significant increase in EM inflation, sharp slowdown in global growth and no sell-off in commodities. For more on risks, please see 30."

JPMorgan Asia Pacific Equity Strategy 20100903

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