Key Trades and Risks
Emerging Markets Equity Strategy
Emerging Markets Equity Strategy
Adrian MowatAC
(852) 2800-8599
adrian.mowat@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
Deanne Gordon
(27-21) 712-0875
deanne.gordon@jpmorgan.com
J.P. Morgan Equities Ltd.
Ben Laidler
(1-212) 622-5252
ben.m.laidler@jpmchase.com
J.P. Morgan Securities Inc.
Peter Westin
(7-495) 967-1771
peter.westin@jpmorgan.com
J.P. Morgan Bank International LLC
Rohan Ghalla
(91-22) 6719-8289
rohan.d.ghalla@jpmorgan.com
J.P. Morgan India Private Limited
Rajiv Batra
(91-22) 6695 3224
rajiv.j.batra@jpmorgan.com
J.P. Morgan India Private Limited
See page 91 for analyst certification and important disclosures, including non-US analyst disclosures.
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MSCI EM relative performance
20
40
60
80
100
120
140
96 98 00 02 04 06 08
v s USA
v s World
Source: Datastream
Overweight markets:
China, Mexico, Thailand and Philippines
Underweight markets:
Korea, Russia, Eastern Europe, Indonesia
For our ‘Key Trade’ stock ideas,
click here to download the Bloomberg
spreadsheet.
• By 6 January the MSCI EM index recovered by 34% from its 27
October low. During this period EMBI+ spreads declined from 865bp to
629bp. For now the rally appears to be over as investors brace
themselves for more poor economic data and the result season.
• The conflicting forces on the asset class are poor economic and profit
data versus increasingly aggressive monetary policy and a slow
reduction in risk aversion. As these forces play out, markets are likely to
be stuck in a volatile trading range. For now this is just the global
growth vs recession trades in which risk assets remain correlated. Our
base case is that pro-growth policies will win out, with EM economies
exiting the recession ahead of DM; our bias is thus to add risk on
weakness. We believe that the combination of record low EM nominal
rates and ZIRP in DM, if combined with improving economic data,
could generate powerful returns in risk assets.
• Our key trades are:
o ZIRP and EM: overweight interest rate “sensitives”
o Fiscal stimulus: overweight domestic discretionary and
direct beneficiaries of government spending
o Overweight China: Mon tresor et mon desert
o Overweight Mexico vs Brazil
o Overweight Philippines and Thailand
• See page 19 for the risks to our view. The key risk is EM economies
failing to respond to monetary and fiscal policy. We believe this is
particularly important for China.

Table of Contents
EM late to the party: Policy rates plunging with growth .......3
Global emerging markets model portfolio by country ........10
Global emerging markets model portfolio by sector...........11
Key trades ...............................................................................12
Risks........................................................................................19
Market drivers.........................................................................22
Macro Monitor.........................................................................23
Brazil: Domestic Upside ........................................................26
China: Stimulus for decelerating growth .............................28
South Korea: Awaiting favorable policies............................30
Taiwan: Range-bound for now..............................................32
Russia: Ruble depreciation is accelerating .........................34
India: Growth resistance vs policy support .........................36
South Africa: Rotating ...........................................................38
Mexico: Front-ending the rate cycle .....................................40
Malaysia: Keep the faith for 2009..........................................42
Poland: Slow, but not cheap .................................................44
Thailand: Narrowing political discount ................................46
Indonesia: 2 C’s - Commodity and currency........................48
Turkey: Remain defensive .....................................................50
Philippines: Growth, remittance and peso...........................52
Extended markers ..................................................................55
Consensus asset allocation ..................................................59
Hindsight trades .....................................................................60
Composite valuation indicators ............................................62
EMBIG100................................................................................66
Emerging Market Dashboards...............................................73
In this report we highlight:
Our top trades
Risks
On- and off-track macro views
Our model portfolio
Valuation stress test
Key ratios for EMBIG 100
Consensus country weights
We have two pages on each
significant emerging market. The
first page has a qualitative
review of events driving the past
12 months, the outlook and a
comment on valuations; the
second page displays the
scorecard, which presents key
economic and equity market
data
The extended markers: This
report contains 36 pages of data
designed to help track emerging
economies and markets
The emerging market
dashboards efficiently display
key economic, equity and debt
data, demonstrating change and
perspective. The dashboards
include our index targets
The authors acknowledge the
contribution of Sanaya Tavaria,
Bharat Kheria, Vinay Joseph and
Ayan Ghosh of J.P. Morgan
Services India Private Ltd.,
Mumbai, to this report. Any
analysis or opinions expressed are
those of the authors alone.