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JP Morgan Has A "Problem" With Emerging Markets
Over the weekend, we highlighted a new study by the Center for Global Development which identified the emerging markets that are most vulnerable to an “external shock” whether in the form of a Fed “liftoff” or a geopolitical shakeup such as a wholesale Russian invasion of Ukraine. With EM multiples, spreads, and currencies trading at a discount to their DM peers, some investors may be tempted to look for a relative value play in the face of increasingly overbought DM equities and fixed income.
Despite what look to be "cheap" valuations, JPM calls the EM contrarian approach “tactically challenging” thanks to leverage, a difficult environment for economic growth and Janet Yellen:
EM equities are trading at much lower multiples than DM ones, its external bonds still offer high yield spreads over DM equivalents, and most of its currencies are some 20-30% undervalued versus the dollar. We meet few managers who claim to be OW EM. But there is no free lunch in EM as its fundamentals look daunting. We have found contrarian, value based strategies tactically challenging and usually prefer to see the start of some improvement in fundamentals and price momentum before diving in…
What are the current challenges to EM? In a nutshell, increased leverage and foreign borrowing, structural weakening of growth, and the coming end of easy Fed money. Each of these is a problem, in our view. In combination, they could be a serious problem. There will surely be episodic rebounds and outperformance in EM assets, but until at least one, if not two of these threats turn around, we will find it hard to expect medium-term outperformance of the full EM asset class..
EM growth has decelerated markedly…
To elaborate, EM growth has been slowing steadily and dramatically since the financial crisis, rebounding initially at 8% in 2010, but has likely fallen to below 4% this year. Productivity growth has come down globally, but more in EM than in DM, with EM labor productivity growth down to almost zero this past year, versus an average of 3-4% before the crisis...
...while both the public and private sectors have taken on more debt…
Unlike the delevering that has spread across DM households, government and banks in the aftermath of the financial crisis, emerging economies reacted by ratcheting up debt, with bank credit now some 25% higher relative to GDP than before the crisis…
...and the market fears the first casualty of a rate hike cycle may well be EMs...
The by now over 6 years of zero US interest rates are making investors wonder who will fall out when the Fed starts shaking the money tree and most have EM very high on this list, creating downside on the EM asset class as we approach the first rate hike...
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As a reminder, here's the breakdown of who's most at risk, and who's improved their position since the eve of the crisis:
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I have a problem with JP Morgan
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com
They are dead wrong. Zero interest rates are not ending anytime soon, QE4 is primed.
They're right but for the wrong reasons, EM's are screwed because they are dependent on global demand and we're in a global recession. I've learned the hard way to never take investment advice from ZH comments.
Buy low sell high. We have zero growth in the USA...not just wars but war mongering 4evr ...only other option is Mars would appear.
you used (the bank notes) in the wrong context.
J.P. Morgan is a problem, period.
Where are the muppets in those charts?
JP Morgan has a "problem" with Submerging Markets (like the US, EU, and Japan) as well.
Nevertheless, with their "settlement with no admission of wrongdoing" strategy, they expect another year of griftacular profits.
Emerging markets got massacred in 2008/2009. You have to believe in a global recovery in order to like EMs. The best place in the world to invest would be an autonomous EM country with its own currency, a stable economy, and low debt -- but good luck finding one of those.
Setting up the bowling pins so they can knock them down.
It's only a problem if they don't get bailed out.
the entire purpose of the brics bank is to compete for the neocolonies the nyc/city banksters set up post ww2. emerging markets may be a problem for jp for a long time. not so for the yuan/ruble/gold brics bank.
"JP Morgan Has A "Problem" With Emerging Markets"
That's why Jamie Dimon is richer than most of them.
The problem JPM has with emerging markets is that Goldman already has its blood funnel stuck deep in their asses.
I logged in just so I could give you an up arrow e_goldstein. That sums it all up so well.