Emerging markets were the last to slip into the global recession but could be the first to recover as governments in China and other developing countries introduce measures to stimulate their economies, JPMorgan Chase & Co said.
Interest rate cuts and fiscal spending will help emerging economies recover eventually, even as growth and corporate profits continue to weaken early this year, analysts led by Adrian Mowat, JPMorgan? chief Asian and emerging market equity strategist, said in a report yesterday.
CYCLICAL
The analysts said they favored early cyclical stocks such as financial, domestic consumer discretionary and consumer technology companies.
?merging markets were the last into the recession and will be the first out as the move to pro-growth monetary policy will work,?the report said. ?hinese economic momentum is key to this view.?br />
China on Nov. 9 announced a 4 trillion yuan (US$585 billion) stimulus plan to bolster growth, including measures for low-rent housing, infrastructure in rural areas, as well as roads, railways and airports.
The Bank of Korea cut its main interest rate to a record-low 2 percent yesterday, joining central banks from Malaysia to Taiwan in lowering borrowing costs to revive economic growth.
?nterest rate expectations in emerging markets are changing fast,?the analysts wrote. ?he drivers are falling inflation and the need to stimulate growth.?br />
China Construction Bank Corp, Brazil? Banco Itau Holding Financeira SA and State Bank of India were among the brokerage? top picks for companies that benefit from falling interest rates, the report said.
Wal-Mart de Mexico SAB, Latin America? largest retailer, and Maruti Suzuki India Ltd, the nation? largest carmaker, could also benefit from increased government spending, the analysts wrote.
REBOUND
Separately, an Asian economic rebound in the second half shouldn? be ruled out as some indicators of future growth are showing ?urprisingly early?improvement, HSBC Holdings PLC said.
?hings look very bad for the short term,?said Robert Prior-Wandesforde, HSBC? 范ingapore-based senior Asia economist, in a report yesterday. ?ut the good news is that the longer lead indicators are providing some light at the end of what is clearly a very dark tunnel.?br />
HSBC examined 25 lead indicators of Asian economic expansion and found that many had been ?trengthening sharply?for several months.
The bank forecast growth in the region excluding Japan to slow to 5.5 percent this year from an estimated 7 percent last year, before accelerating to 7.4 percent next year.
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