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 89 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
vs USA
vs World
Source: Datastream, 9 February 2009.
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 sheet.
• We see tentative signs of economic stabilization in EM. Key PMIs are
rising, although they still indicate contraction. J.P. Morgan’s economic
surprise index is also rising. The monetary cycle in EM ex Russia now
looks supportive of equities. This easing cycle has the potential to be
the fastest with nominal rates moving to record lows. Pro-growth
policy and signs of stabilization are helping EM equities outperform
developed equities year to date.
• The question for 2009 is: Will emerging economies be LIFO (Last in
First Out) or LILO (Last in Last Out) in this global recession. We sit in
the LIFO camp; that is, we hold the view that EM were the last into the
recession and will be the first out as the move to pro-growth monetary
policy should work. A rebound in Chinese economic momentum is
critical to this view.
• Our key trades are:
o Exploit today's volatility through the use of limit orders to
rotate from defensives into early cyclicals. For now, MSCI
EM range is 500 to 600.
o Beneficiaries of lower interest rates
o Domestic consumer discretionary
o Direct beneficiaries of fiscal spending
o Tech preferred over materials (neutral)
o Conviction underweight in Russia
• The key risk to our view is a further down leg in developed economies’
consumption as unemployment rises sharply. The upside risk that may
drive markets above our trading range would be the early
reacceleration in EM growth. For more risks please see page 18.

Table of Contents
Stabilization phase...................................................................3
Global emerging markets model portfolio by country ........10
Global emerging markets model portfolio by sector...........11
Key trades ...............................................................................12
Risks........................................................................................18
Market drivers.........................................................................20
Macro Monitor.........................................................................21
Brazil: Big winner of stabilizing PMI.....................................24
China: Domestic upside.........................................................26
South Korea: Further Policy to follow ..................................28
Taiwan: Expecting a 2H09 recovery......................................30
Russia: The ruble; make or break?.......................................32
India: New Year, renewed challenges...................................34
South Africa: Rotating ...........................................................36
Mexico: Currency Woes.........................................................38
Malaysia: Keep the faith for 2009..........................................40
Poland: Slow, but not cheap .................................................42
Thailand: Narrowing political discount ...............................44
Indonesia: 2C’s - Commodity and Currency ........................46
Turkey: Aggressive rate cuts continues ..............................48
Philippines: Easing the way out............................................50
Extended markers ..................................................................53
Consensus Asset Allocation .................................................57
Hindsight trades .....................................................................58
Composite valuation indicators ............................................60
EMBIG100................................................................................64
Emerging Market Dashboards...............................................71