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Research Note - JPM Emerging Markets

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  • Emerging Markets Equity Research 11 September 2014

    Emerging Markets Strategy Dashboards

    See page 24 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

    Emerging Markets Equity Strategy Team RecommendationsAdrian MowatAC Emerging Markets adrian.mowat@jpmorgan.com (852) 2800 - 8599 J.P. Morgan Securities (Asia Pacific) Limited OW: Taiwan, India, Brazil, Mexico, Thailand, Indonesia, Greece,

    UAE and Qatar UW: Korea, Chile, Peru, Poland, South Africa, Malaysia and

    Russia

    KEY TRADES: EM joins the equity bull market, Broadening global growth (Taiwan IT, Mexico, Greece)

    Lower CAD risk and better policy (India, Indonesia, Thailand)

    Pedro Martins Junior LatAm pedro.x.martins@jpmorgan.com (55-11) 4950-4121 Banco J.P. Morgan S.A. David Aserkoff CEEMEA david.aserkoff@jpmorgan.com (44-20) 7134-5887 J.P. Morgan Securities plc Rajiv Batra Emerging Markets rajiv.j.batra@jpmorgan.com (91-22) 6157-3568 J.P. Morgan India Private Limited Sanaya Tavaria Emerging Markets sanaya.x.tavaria@jpmorgan.com (1-212) 622-5469 J.P. Morgan Securities LLC Global Emerging Markets Research

    Luis Oganes Global Emerging Markets luis.oganes@jpmorgan.com (1-212) 834-4326 J.P. Morgan Securities LLC

    For full list of J.P. Morgan equity strategists please see the directory on the back page

    Key Changes Market performance to 10 September, 2014

    Year to date: MSCI Emerging Markets 9.8% outperforming MSCI World by 3.9%

    Year to date: MSCI EM Latin America 15.7% outperforming MSCI Emerging Markets by 5.9%

    Top three markets YTD in US$: UAE, Egypt and Indonesia

    Bottom three markets YTD in US$: Russia, Chile and Poland

    Liquidity Monitor Top three markets by increase in ADTV (1 wk Avg. vs 3MMA): Philippines (US$0.5bn, up 150%), Colombia (US$2.1bn, up 62%) and South Africa (US$1.3bn, up 0%)

    Top three markets by increase in Daily Velocity Ratio (1 wk Avg. vs 3MMA): Philippines, Colombia, and South Africa

    Sector performance Year to date: MSCI EM Healthcare 21% outperforming MSCI Emerging Markets by 11.2%

    Year to date: MSCI EM Materials -0.2% underperforming MSCI Emerging Markets by 10%

    Top three key market sectors YTD in US$: Brazil Financials, Brazil Energy and India Financials

    Bottom three key market sectors YTD in US$: Russia Energy, Korea Materials and Korea Information Technology

    Demand classification sector performance YTD: Domestic Demand 11.5%, Global Capex 9.4%, Global Consumer 7.6% and Global Price Takers 4.1%

    Headline inflation data published since the last publication:

    China: CPI 2.0%oya (J.P Morgan 2.3%, Consensus 2.2%) Philippines: CPI 4.9%oya (Consensus 5.0%) Taiwan: CPI 2.1%oya (J.P Morgan 1.8%, Consensus 1.8%) Brazil: CPI 6.5%oya (J.P Morgan 6.57%, Consensus 6.52%) Colombia: CPI 3.0%oya (J.P Morgan 2.93%, Consensus 2.94%) Mexico: CPI 4.2%oya (J.P Morgan 4.16%, Consensus 4.10%) Chile: CPI 4.5%oya (J.P Morgan 4.3%, Consensus 4.3%) Czech Republic: CPI 0.6%oya (Consensus 0.5 %) Russia: CPI 7.6%oya (J.P Morgan 7.6%, Consensus 7.6%) Greece: CPI -0.3%oya (Consensus -0.5 %) Turkey: CPI 9.5%oya (Consensus 9.4%)

    J.P. Morgan's revisions to 2014 GDP forecasts

    Negative: Korea 3.6% [3.7%]

    J.P. Morgan's revisions to 2015 GDP forecasts

    Negative: Chile 3.1% [3.2%]

    J.P. Morgan's revisions to central bank policy rate forecasts Philippines: Current 4.00% [3.75%], Last change 11 Sep 14 +25bp [31 Jul 14 +25bp], Forecast next change # [11 Sep 14 +25bp], Sep 14 4.00%, Dec 14 4.00%, Mar 15 4.00%

    Table of Contents Page #

    Regional Summary 2 Market Performance 3 Liquidity Monitor 4 Monitoring Inflation 5 Market Drivers 6 Cross-section Earnings Growth 7 Earnings Revisions 8,9,10 Sector-Country PE Matrix 11 Valuation Distribution 12 Demand Classification 13 Equities relative to Bonds 14 Economic Momentum 15 Policy Rates Forecast 16 Currency Forecasts 17,18 Credit Risk 19 Emerging Market Balance Sheets 20

    Emerging Market in Perspective 21 Emerging Capital Market 22 Index Weightings 23

    Please see Key Trades and Risks: Emerging Markets Equity Strategy, Mowat et al, 27 August 2014, for our non-consensus bullish call and new target of 1200 for the EM index. For more on the case for emerging market equities please see The

    Underdog is Back: The case for an Emerging Equities Bull Market, Mowat, et al., 25 July 2014.

  • 2Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599,adrian.mowat@jpmorgan.com

    Summary: Regional and Country Valuations

    10-Sep-14 Hist.^ P/ EPS Current 12m Prospective Hist.^ Current Prospective Hist.^ Current ProspectiveMSCI Index Trough (Trend) Trailing Fwd 2013 2014E 2015E Peak Trailing 2014E 2015E Trough Trailing 2014E 2015E 2012 2013 2014E 2015E 2013 2014E 2015E

    Global* 468 9.4 15.6 16.0 14.5 16.8 15.7 14.1 4.1 2.6 2.6 2.8 1.3 1.9 1.9 1.8 0.1 8.0 7.1 11.3 12.5 12.4 13.0USA 1,910 11.6 17.7 17.6 16.0 18.4 17.3 15.5 4.0 2.0 2.1 2.2 0.9 2.5 2.4 2.2 5.3 8.0 6.6 11.7 14.7 14.4 15.0Europe* 1,406 9.8 12.5 15.5 14.0 16.2 15.3 13.5 6.1 3.5 3.6 3.9 1.1 1.7 1.7 1.6 -3.8 -5.9 6.1 12.8 11.0 11.2 12.2Japan* 800 11.5 26.8 15.1 14.0 27.3 15.6 14.6 3.0 1.7 2.1 2.3 0.9 1.4 1.2 1.1 -14.0 10.9 75.7 6.3 5.1 7.8 7.8Emerging Markets* 50,705 7.9 10.4 12.1 11.0 12.7 11.9 10.6 3.6 2.7 2.8 3.1 1.0 1.5 1.5 1.3 -2.7 20.2 7.3 11.8 12.7 12.7 13.3EMF Asia 737 8.5 13.6 12.7 11.4 13.8 12.3 11.1 3.4 2.4 2.5 2.7 1.0 1.6 1.6 1.5 5.6 7.5 12.7 11.2 12.7 13.3 13.7EMF LatAm* 7,556,719 8.6 10.0 14.9 13.1 15.5 14.6 12.5 5.1 3.0 3.0 3.3 0.6 1.8 1.8 1.6 -18.6 5.5 5.8 16.5 11.7 12.0 13.4EMF EMEA* 501 8.7 6.7 9.6 9.1 9.5 9.6 8.9 4.9 3.4 3.7 4.3 1.1 1.2 1.2 1.0 -10.4 96.6 -1.3 8.8 13.1 12.3 12.4China 67 7.2 8.3 10.4 9.3 11.1 10.1 9.0 5.7 3.2 3.2 3.5 0.5 1.5 1.5 1.3 1.4 10.9 9.6 11.7 14.7 15.2 15.4Brazil* 219,657 9.6 9.2 12.3 11.0 12.8 12.1 10.6 7.6 3.8 4.0 4.2 0.4 1.5 1.5 1.3 -30.7 13.8 5.3 14.9 11.5 12.3 13.4Korea 580 7.7 9.3 11.5 9.9 12.7 11.0 9.4 2.9 1.2 1.3 1.4 0.5 1.1 1.1 1.0 7.7 -5.9 15.2 17.0 9.4 10.1 10.9Taiwan 341 12.1 16.6 15.2 13.7 17.4 14.4 13.4 7.8 2.9 2.9 3.3 1.2 1.9 1.9 1.7 3.9 36.9 21.0 7.7 12.0 13.5 13.3South Africa* 1,284 9.1 14.7 15.5 13.8 16.9 14.9 13.4 4.7 3.1 3.2 3.6 1.4 2.6 2.5 2.3 8.2 4.9 13.3 11.6 16.8 17.4 17.8India 1,016 9.6 18.8 19.4 16.6 21.3 18.7 15.9 2.6 1.4 1.5 1.6 1.4 3.0 2.9 2.6 10.0 7.1 13.9 17.6 16.5 16.5 17.1Russia* 749 3.2 2.6 4.6 4.7 4.6 4.7 4.7 5.3 4.9 5.3 6.3 0.2 0.5 0.5 0.5 -11.1 -4.2 -2.7 0.0 13.0 11.7 11.0Mexico* 43,934 9.0 13.1 22.3 19.6 22.2 22.4 18.6 4.1 1.5 1.4 1.6 0.7 2.8 2.8 2.6 37.3 -1.8 -0.8 20.1 13.4 12.5 14.6Malaysia 660 10.3 17.1 16.5 15.3 17.3 16.2 14.9 5.1 3.2 3.2 3.4 0.6 2.1 2.1 1.9 15.6 0.3 7.1 8.8 12.8 13.2 13.3Chile* 4,439 11.4 15.2 19.3 15.7 21.5 18.4 14.7 8.9 2.5 2.6 2.8 0.9 1.6 1.6 1.5 -19.3 -7.6 16.5 24.9 8.3 8.9 10.7Indonesia 6,074 4.8 15.6 16.3 14.6 17.7 15.8 14.1 5.9 2.4 2.5 2.7 0.9 3.4 3.3 2.9 13.7 3.6 12.2 11.4 22.1 22.2 21.7Turkey* 1,137,256 5.1 7.8 11.2 10.0 11.1 11.3 9.5 9.4 2.6 3.0 3.3 1.0 1.5 1.5 1.4 17.1 9.9 -1.9 18.4 15.8 13.8 14.8Thailand 550 7.7 10.6 14.9 13.1 16.2 14.4 12.6 5.9 3.0 3.0 3.3 0.6 2.2 2.1 1.9 16.3 7.4 12.5 14.0 15.3 15.6 15.9Poland* 1,823 6.8 11.0 14.6 13.9 14.3 14.7 13.6 7.1 3.7 3.9 4.2 1.0 1.4 1.4 1.3 -5.6 -22.1 -2.7 8.1 10.0 9.5 9.8Czech Republic* 302 7.3 7.0 12.8 14.2 11.6 13.4 14.5 10.0 5.4 5.4 5.2 0.5 1.5 1.5 1.2 -3.2 -10.9 -13.6 -7.2 13.4 11.4 9.1Egypt* 1,869 5.5 9.1 22.6 10.7 20.9 23.5 8.6 8.4 1.5 2.1 3.4 1.0 2.0 1.8 1.6 4.6 -28.2 -10.9 171.8 7.8 9.0 19.6Philippines 1,227 8.8 29.3 21.4 19.2 22.2 21.1 18.4 4.9 2.1 2.1 2.4 0.9 3.1 3.0 2.8 9.1 8.8 5.6 14.3 15.6 15.0 15.6Hungary* 862 4.3 5.0 10.7 10.0 8.4 12.1 9.3 5.3 3.4 3.2 4.0 0.6 0.9 0.8 0.8 -12.3 0.1 -30.3 30.2 10.9 7.3 8.8Greece 236 - - - - 13.9 - 16.1 8.5 0.8 1.0 1.4 - 1.1 1.1 1.1 -8.0 3.0 - - 11.5 - 6.7UAE 563 - - 18.6 17.3 19.7 18.2 17.0 - 2.2 2.3 2.7 - 2.1 2.1 1.9 - 13.2 8.1 7.3 11.3 11.5 11.8Qatar 1,169 - - 17.6 15.7 18.6 17.1 15.2 - 3.7 3.7 4.1 - 2.6 2.6 2.4 - 6.3 8.9 12.9 14.4 15.2 16.4

    Source: I/B/E/S, MSCI, J.P. Morgan estimates. Updated as of 10 September 2014* Market forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using I/B/E/S estimates. IBES Estimates are not available for Morocco, Jordan, Peru and Colombia.For all other markets, forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using JPM estimates for covered stocks and I/B/E/S estimates for the rest.Hist.^ refers to the historically lowest valuation of the MSCI indices since Jan 1991. Trough PE represents the lowest 12 month trailing PE. For dividend yield the highest values are taken to represent the best multiple.USA, Europe and Japan PE are I/B/E/S aggregate estimates. Japan Valuation estimates are for the financial year ending MarchP / EPS (Trend) uses the trend EPS for the indices calculated by the linear regression on the natural log of trailing EPS. For more, please refer to 'Mayday call for the shorts - Perspectives and Portfolios', 5 May 2009, Mowat et al.P / EPS (Trend)' is NM for indices where the modeled relationship is weak with a less than 0.50 R-square. The start dates China and Singapore models are modified to make them more relevant. Sector indices inputs have not been altered.

    11 September 2014

    P/E (x) Div. Yield (%) P/BV (x) Earnings growth (%) ROE (%)

  • 3Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: A

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