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 [email protected] (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 [email protected] (55-11) 4950-4121 Banco J.P. Morgan S.A. David Aserkoff CEEMEA [email protected] (44-20) 7134-5887 J.P. Morgan Securities plc Rajiv Batra Emerging Markets [email protected] (91-22) 6157-3568 J.P. Morgan India Private Limited Sanaya Tavaria Emerging Markets [email protected] (1-212) 622-5469 J.P. Morgan Securities LLC Global Emerging Markets Research
Luis Oganes Global Emerging Markets [email protected] (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,[email protected]
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: Adrian Mowat (852) 2800-8599 , [email protected]
Market Performance: MSCI AC Performance by Region, Country and Sector
YTD 2014
Glo
bal
Nor
th
Am
eric
a
Euro
pe
Jap a
n
EMF
EM
F A
sia
EMF
Latin
A
mer
ica
EM
EA
EM
F A
sia
Kor
ea
Taiw
an
Chi
na
Indi
a
Mal
aysi
a
Thai
land
Indo
nesi
a
Phili
ppin
es
Consumer Discretionary 0.9% 3.3% -4.7% -3.4% 11.2% 7.4% 19.5% 17.4% 7.4% 1.3% -4.3% 3.5% 35.9% -1.0% 25.6% 17.9% 11.4%Consumer Staples 4.0% 5.3% 0.9% 7.6% 5.4% 8.8% 4.1% -2.7% 8.8% 26.6% 6.1% -12.0% 14.2% -2.6% 7.4% 17.4% 53.1%Energy 8.9% 10.9% 1.6% 4.2% 8.3% 10.9% 32.3% -5.3% 10.9% -34.7% -7.1% 15.4% 23.2% -20.2% 5.8% 20.8%Financials 4.7% 6.9% -1.7% -10.9% 11.6% 9.4% 33.0% 0.4% 9.4% 8.8% 7.5% -0.3% 33.0% -2.8% 34.9% 33.1% 26.3%Healthcare 13.5% 15.3% 9.3% 8.7% 21.0% 26.9% 0.0% 12.2% 26.9% 0.0% -28.5% 10.2% 36.1% 25.6% 71.6% 0.0%Industrials 1.2% 2.7% -5.4% 3.9% 6.8% 5.1% 14.9% 6.5% 5.1% -4.0% 0.7% -0.9% 43.6% 2.0% 36.2% 22.2% 16.1%Information Technology 11.4% 12.9% -3.3% 5.0% 14.1% 13.8% 30.0% 13.8% -7.2% 25.3% 29.0% 13.2%Materials 3.4% 9.5% 0.0% 1.1% -0.2% 1.6% -4.4% 4.0% 1.6% -7.6% -3.0% 2.7% 28.5% -5.0% 0.6% 18.9%Telecoms 1.8% 2.7% -5.0% -6.4% 10.7% 18.0% 5.0% 1.0% 18.0% 15.4% -1.8% 24.1% 9.3% 3.8% 17.2% 27.6% 23.8%Utilities 11.2% 12.4% 11.3% -6.0% 14.4% 14.6% 15.6% 12.0% 14.6% 17.9% 11.6% 17.9% 1.9% 30.5% 32.4% 21.9%Region / Country Benchmark
5.9% 8.6% 0.0% -1.2% 9.8% 10.5% 15.7% 1.5% 10.5% -1.5% 14.2% 7.8% 24.9% -1.4% 19.7% 25.6% 23.2%
Change vs dollar 4.9% 0.4% 3.0% -0.5% -1.4% 2.2% 3.0% 2.1% 3.5% 1.8%
YTD 2014
EMF
Latin
A
mer
ica
Bra
zil
Mex
ico
Chi
le
Arg
entin
a
Peru
Col
ombi
a
EM E
urop
e &
M
E
Sou
th A
fric
a
Rus
sia
Turk
ey
Pola
nd
Hun
gary
Cze
ch
Rep
ublic
Egyp
t
Gre
ece
UA
E
Qat
ar
Consumer Discretionary 19.5% 24.8% 21.2% -3.9% 17.2% 19.8% 10.8% 39.2% 21.3%Consumer Staples 4.1% 3.0% 0.7% -3.8% 8.7% -3.8% 1.3% 1.6% 12.6% -29.6%Energy 32.3% 34.7% 6.9% 42.1% -8.6% -10.2% 20.9% 0.2% 18.2% -1.1% -15.9%Financials 33.0% 38.6% 6.2% 8.9% 87.8% 22.3% 25.4% -7.1% 15.0% -21.5% 25.3% 3.3% 6.0% 10.2% 52.1% -9.8%Healthcare 0.0% -1.1% -18.1% 19.6% -9.3%Industrials 14.9% 15.1% 16.8% -7.2% 9.0% 8.9% 16.8%Information Technology 30.0% 23.1%Materials -4.4% -21.4% 11.1% 10.6% 19.3% 22.8% 3.9% 6.5% 12.3% 52.8% 6.8%Telecoms 5.0% -6.8% 8.9% -2.0% 49.0% -10.1% 13.5% -8.5% 12.2% 11.6% 0.1% 8.8% 12.7%Utilities 15.6% 14.8% 24.6% -0.9% 12.0% 29.6% 21.9% 3.6%Region / CountryBenchmark
15.7% 16.1% 8.2% 7.6% 58.4% 20.9% 13.1% -6.3% 14.9% -3.7% 21.0% 6.0% -5.0% 13.7% 37.6% 0.1% 44.2% 23.9%
Change vs dollar 5.6% 0.0% -10.7% -22.5% -2.0% 0.4% -1.6% -10.8% -0.3% -5.6% -9.7% -5.8% -2.8% 4.9% 0.0% 0.0%
Notes Updated as of 10 September 2014Source: Bloomberg, MSCI.Regional headings first sorted by regional weights in the MSCI EMF and then country headings from left to right by relative weights within the MSCI EMFIndices: Regions in US$ and countries in local currency. Local currency movements against the dollar : appreciation / (depreciation)Country and sector cross sections in italic blue have outperformed their indices by more than 2%. Shaded areas have underperformed their indices by more than 2%.
11 September 2014
Emerging Markets Equity Strategy Research
J.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
Equity Markets Liquidity MonitorCountry Stock FF Mkt Cap
Exchange (US$ Bn) 1 Wk Avg 3 MMA 13 Avg 1 Wk Avg 3M Avg 13 Avg
Developed Markets
US NYSE + NASDAQ + AMEX 22,665 37 42 38 0.16 0.19 0.20
UK London Stk Exchange 3,757 7.3 7.2 6.5 0.19 0.19 0.19
Japan Tokyo Stk Exchange 3,558 17 18 25 0.48 0.50 0.75
Australia ASX 1,453 4.9 4.1 4.3 0.34 0.29 0.32
HK HKSE 2,488 7.7 5.9 5.9 0.32 0.26 0.28
Singapore SSE 365 0.8 0.8 1.1 0.23 0.21 0.32
EM Asia
China Shanghai & Shenzhen A 2,003 31 24 21 1.57 1.33 1.27
India BSE & NSE 476 3.6 3.5 2.3 0.77 0.77 0.68
Indonesia JSE 183 0.6 0.5 0.6 0.34 0.30 0.33
Korea KSE 849 4.0 3.8 3.6 0.47 0.46 0.49
Malaysia Bursa Malaysia 235 0.8 0.7 0.6 0.34 0.28 0.29
Philippines PSE 72 0.5 0.2 0.3 0.64 0.32 0.39
11 September 2014
Daily Trading Value (US$ bn) Daily Velocity Ratio (%) BRIC Trading value (US$ bn, 3MMA)
Korea, Taiwan, HK & Singapore Trading Value (US$ bn, 3MMA)
0
1
2
3
4
5
6
7
8
0
5
10
15
20
25
30
35
40
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
China (LHS) India Brazil Russia
8
10
13 Korea Taiwan HK Singapore
Philippines PSE 72 0.5 0.2 0.3 0.64 0.32 0.39
Taiwan TWSE & OTC 745 3.6 4.3 3.2 0.48 0.58 0.52
Thailand TSE 145 1.5 1.4 1.6 1.04 1.04 1.17
EMEA
Russia RTS + MICEX + DR 283 1.3 1.3 1.5 0.48 0.42 0.46
South Africa Johannesburg Stk Exchange 283 1.3 1.3 1.5 0.48 0.42 0.46
Turkey Istanbul Stk Exchange 99 1.5 1.5 1.7 1.49 1.54 1.55
Poland Warsaw Stk Exchange 101 0.7 0.7 0.7 0.70 0.69 0.76
Greece Athens Stock Exchange 41 0.1 0.2 0.1 0.27 0.39 0.39
UAE Abu Dhabi Securities Market 25 0.09 0.09 0.09 0.36 0.38 0.51
Qatar Qatar Stock Exchange 26 0.21 0.14 0.07 0.84 0.61 0.38
LatAm
Brazil Bovespa + DR 607 6.8 4.7 4.8 1.11 0.83 0.84
Mexico Mexico Stk Exchange + DR 311 2.1 1.3 1.7 0.69 0.44 0.55
Chile Santiago Stk Exchange 101 0.14 0.10 0.18 0.13 0.10 0.14
Colombia Bogota Stk Exchange 63 0.08 0.08 0.09 0.13 0.13 0.13
Peru Lima Stk Exchange 38 0.02 0.02 0.02 0.06 0.06 0.06
Source: Bloomberg, J.P. Morgan. Notes: Market cap uses all exchanges covered by Bloomberg for a specific country and primary security of company only. Updated as of 5 September 2014
The latest one week average is red (grey box in B&W, dark blue in blue scale) if less than 90% of the three month average or blue (solid black box in B&W, light blue in blue scale) if greater than 110% of the three month average.
To calculate the free float we use the MSCI free float factor for all markets except for Hong Kong, Russia and South Africa where we calculate the free float for the Hong Kong Composite Index, MICEX, and JSE.
Trading value calculation for Russia, Mexico and Brazil, includes value of depository receipts traded (DR) along with local stock exchange turnover. South Africa and Australia market capitalisation and trading value includes only local listed portion of dual listed stocks.
Emerging ASEAN Trading Value (US$ bn, 3MMA)
0
3
5
8
04 05 06 07 08 09 10 11 12 13 14
0.0
0.5
1.0
1.5
2.0
2.5
04 05 06 07 08 09 10 11 12 13 14
Malaysia Indonesia Thailand Philippines
Trading value calculation for Russia, Mexico and Brazil, includes value of depository receipts traded (DR) along with local stock exchange turnover. South Africa and Australia market capitalisation and trading value includes only local listed portion of dual listed stocks.
Velocity Ratio = (Trading Value / Free float market cap) * 100
4
5Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
11 September 2014
Monitoring Inflation: The real threat to EM equitiesInflation CB Inflation JPM f'cast CPI (YoY) Policy Rate Policy Rate Policy Rate
Country Rate Target (%) CY2014 Date Previous Latest MoM 3M ann Previous Latest YoY 3M ann Current Last Change Next ChangeDeveloped Markets
United States Chained CPI na 1.9 Jul-14 2.1 2.0 0.1 2.8 2.2 2.4 1.9 2.0 0.13 16 Dec 08 (-87.5bp) 3Q 15 (+25bp)
US core PPI Core PPI SA na na Jul-14 1.9 1.8 0.1 1.5 - - - - - - -
US Unit Labor Cost LC Nonfarm na na Jun-14 2.5 1.7 NA (0.1) - - - - - - -
Euro Area CPI under 2% 0.6 Aug-14 0.4 0.3 0.1 (1.8) (1.1) (1.0) 0.9 (1.7) 0.05 4 Sep 14 (-10bp) 3Q 18 (+20bp)
Japan CPI na 2.9 Jul-14 3.6 3.4 0.0 1.2 5.2 4.5 2.3 0.0 0.05 5 Oct 10 (-5bp) On hold
Australia CPI 2 - 3 2.6 Jun-14 2.9 3.0 NA 1.9 2.2 2.5 na na 2.50 6 Aug 13 (-25bp) 3Q 15 (+25bp)
Hong Kong CPI na 4.0 Jul-14 3.6 4.0 1.0 4.1 4.2 4.1 3.1 5.4 0.50 17 Dec 08 (-100bp) 3Q 15 (+25bp)
Singapore CPI na 1.5 Jul-14 1.8 1.2 (0.3) (1.7) 3.1 3.0 0.7 (3.2) - - -
EM Asia
China CPI 4% 2.2 Aug-14 2.3 2.0 (0.5) (2.4) 3.6 3.0 1.7 1.4 6.00 7 Jul 12 (-31bp) On hold
Korea CPI 3.0 (1) 1.5 Aug-14 1.6 1.4 0.2 0.8 1.1 (0.4) 2.3 1.5 2.25 14 Aug 14 (-25bp) On hold
Indonesia CPI 4.5 (1) 5.7 Aug-14 4.5 4.0 (0.2) 7.6 9.1 2.3 5.5 4.8 7.50 12 Nov 13 (+25bp) On hold
India WPI na na Jul-14 5.4 5.2 1.1 8.7 8.1 8.4 3.4 5.2 8.00 28 Jan 14 (+25bp) 4Q 14 (+25bp)
India CPI 6% 8.5 Jul-14 8.6 8.0 1.1 8.7 8.1 8.4 3.4 5.2 8.00 28 Jan 14 (+25bp) 4Q 14 (+25bp)
Malaysia CPI na 2.7 Jul-14 3.3 3.2 0.1 1.5 3.5 3.1 2.6 1.1 3.25 10 Jul 14 (+25bp) 18 Sep 14 (+25bp)
Philippines CPI 4.0 (1) 4.2 Aug-14 4.9 4.9 0.3 5.3 4.6 4.0 2.5 1.2 4.00 11 Sep 14 (+25bp) -
Thailand CPI 0.5 - 3.0 2.6 Aug-14 2.2 2.1 (0.1) (1.1) 0.2 (0.6) 0.4 1.0 2.00 12 Mar 14 (-25bp) 1Q 15 (+25bp)
Taiwan CPI na 1.4 Aug-14 1.8 2.1 0.4 3.7 4.2 5.6 1.1 3.1 1.88 30 Jun 11 (+12.5bp) 1Q 15 (+12.5bp)
Latin America
Brazil CPI IPCA 4.5 (2) 6.3 Aug-14 6.5 6.5 0.3 2.7 7.7 7.5 6.7 7.2 11.00 2 Apr 14 (+25bp) On hold
Colombia CPI 3.0 (1) 2.8 Aug-14 2.9 3.0 0.2 1.8 3.3 3.5 na na 4.50 29 Aug 14 (+25bp) 4Q 14 (+25bp)
Mexico CPI 3.0 (1) 4.1 Aug-14 4.1 4.2 0.4 3.3 5.4 5.7 3.4 2.5 3.00 6 Jun 14 (-50bp) 4Q 15 (+25bp)
Peru CPI 2.0 (1) 3.0 Aug-14 3.3 2.7 (0.1) 2.1 4.0 3.6 2.6 1.5 3.75 10 Jul 14 (-25bp) 1Q 15 (+25bp)Chile CPI NSA 3.0 (1) 4.0 Aug-14 4.7 4.5 0.3 2.4 6.3 6.7 4.4 4.1 3.50 14 Aug 14 (-25bp) 11 Sep 14 (-25bp)
Europe, Middle East and Africa
Czech Republic CPI 2.0 (1) 0.9 Aug-14 0.5 0.6 0.7 2.7 0.6 1.1 0.7 1.8 0.05 1 Nov 12 (-20bp) On hold
Hungary CPI 3% 0.1 Jul-14 (0.1) 0.2 (2.4) (10.2) (1.1) (0.3) 2.7 2.7 2.10 22 Jul 14 (-20bp) 4Q 15 (+20bp)
Poland CPI 1.5 - 3.5% 0.2 Jul-14 0.3 (0.2) 0.6 2.0 0.3 (0.4) 0.3 0.5 2.50 3 Jul 13 (-25bp) 4Q 14 (-50bp)
Russia CPI 5-6% 7.2 Aug-14 7.5 7.6 2.2 11.8 9.9 10.3 6.6 12.5 8.00 25 Jul 14 (+50bp) 1Q 15 (-25bp)
South Africa CPI 3-6% 6.1 Jul-14 6.6 6.3 0.8 5.2 9.2 9.0 5.7 5.0 5.75 17 Jul 14 (+25bp) 18 Sep 14 (+25bp)
Greece CPI 2% - Aug-14 (0.7) (0.3) (1.2) (7.1) (2.6) (2.4) (1.1) (5.2) 0.25 - -
Turkey CPI 5.0 (2) 9.0 Aug-14 9.3 9.5 0.1 3.5 12.6 14.4 9.7 2.1 8.25 17 Jul 14 (-50bp) On hold
Source: J.P. Morgan Economics, Bloomberg. Note: Current inflation data for countries which outside/above target range is highlighted. MoM and 3 month annualised data is calculated from inflation indices. * under review# Countries where central banks target is not available. We have given J.P. Morgan Economic estimates. RBI forecasts inflation not target.In case of Taiwan, Estimate by DGBAS,CB targets M2 growth Updated as of 10 September 2014
CPI (YoY) CPI (%) Food CPI (YoY) Core CPI (%)
6Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
Outlook: Market DriversGlobal and developed market driversCountry Positive NegativeGlobal Acceleration in DM growth Bond yields grinding higherUS Recovering housing market, fiscal drag easing Higher bond yields. higher mortgage rates, declining NIMsEurope Improving financing conditions, , Lower fiscal drag, falling EUR/USD, potentially more aggressive ECB Weak economy, deflation risk, weak credit backdrop
UK Strong domestic recovery, unemployment rate going down Political headwinds, potential earlier than expected start of monetary tightening cycle
Japan New PM's pro-growth policy of fiscal boost and inflation targeting, more competitive Yen, QQE Rising energy costs and fiscal sustainability worriesAustralia Low sovereign debt, monetary policy flexibility, high dividend yield market attracting local and global flows. Risk to growth from capex/terms of trade downturn, potential currency fragility, high household debt levels, and exposure to growth
risks in China.Hong Kong Stabilizing property price, slower land sales. DM economic recovery drives HK exports. Closer integration to Pearl River Delta is
positive in the long run.Vulnerable to the Feds policy normalization. Economic fundamentals remain weak with slowly recovering GDP. Credit risk from trade financing for banks.
Singapore We expect a modest rebound in 2014 GDP growth expectations with general economic conditions starting to rebound against 2Q13 lows. General economic growth for 2014 is expected to benefit from low-base effects in 2013 (note that street has lowered GDP forecasts seven times since January 2013).
Ongoing foreign labor tightening is expected to structurally impact corporate earnings and GDP growth, with long-term GDP growth to moderate from a 10-year historical CAGR of 6.2% to 4.1% on our estimates. We also estimate Singapore to transition up to 172,000 jobs away from Manufacturing into Services while progressing into a productivity-led growth model, which would create long-term structural drag.
Source: J.P. Morgan.
Emerging Market DriversCountry Positive NegativeChina Stabilizing growth prospects; valuations partly discounting fundamental weakness Less policy flexibility, growth sectors expensive, excessive leverageBrazil Large and liquid market offering many bottom up options, large infrastructure investment program, labor market still sturdy Large share of commodity stocks in the index, government interventionism, high inflation/domestic monetary tightening, consensus
earnings are too high, risk of sovereign debt downgrade, local currency weakness.Korea Recovery in domestic demand, benefitting from DM economic growth Weakening of the JPYTaiwan Global economy is expected to see solid upturn in 2H14. Taiwan's export and industrial sectors should benefit from the solid
demand in DM and China. China-related sectors, Cement, Automation and Industrials, benefits from the improving macro. Easing concerns over China's asset quality also imposes less downside risks on Taiwan financial sector. Mayoral elections in year-end are likely to stimulate potential election rally in 2H14. Among technology sector, we forecast stronger growth profile for LED/Foundry/Display but muted for OSAT/mobile/PC.
Taiwan is vulnerable to the external environment. A series of civil disobedience started from end-March and the upcoming election at year end add up political risks. Cross-strait development is now delayed due to people's opposition to the content and legislative procedure of the Trade in Service Agreement.
South Africa Pick-up in commodity prices. Strikers return to work. Locals keep selling bonds to buy stocks. Eskom issues highlight policy paralysis. Growth remains sluggish. Valuations expensive v own history.
India Improved corporate and consumer confidence, Expectations on growth revival, Easy global liquidity helping lower cost of capital Sticky core CPI inflation, slower-than-expected progress on key policy reforms, Weak investment cycle
Russia Rebound from trough valuations. High dividend yield with upside. Exporters should benefit from record-lows on RUB. More sanctions likely. Deteriorating economy and higher rates diminish upside if politics improve
Mexico High correlation to US manufacturing recovery, undervalued FX, underpenetrated credit sector, internal economy picking up from government spending, reform agenda to boost growth, no inflation concerns.
High valuations, earnings disappointment, no room for disappointment on economic growth, market depth.
Malaysia Government fiscal consolidation gaining traction with subsidy cuts and GST implementation next year. Oil and gas/railway-related capex fueling domestic growth, CPO price rise on supply tightness/bio fuel blending requirements; recovering exports.
Diminishing current account surplus on imported capital equipment, property demand slowdown on cooling measures, moderating consumption growth on the back of subsidy cuts, 3-year peak in foreign ownership.
Indonesia Healthy transmission of nominal GDP growth to EPS growth, Policy credibility improved with fuel price increases and recent BI actions, underweight investor positioning.
Financing persistent CA deficit, decelerating economic growth, Infrastructure bottlenecks, transmission of weaker Rupiah impact through the economy.
Turkey ECB QE will help finance the high CAD. Keeps pace with firm EM rally. Best revisions in the region. High beta in EM bull mkt. Export markets at risk in MENA (ISIS). Do rates need to rise further given 9+% CPI?
Thailand Flexible monetary condition, healthy corporate balance sheet, strong FDI, better exports Political uncertainties, low public spending, high household debt, negative EPS revision
Qatar & UAE Strong GDP growth, stable FX, high payout ratios, few problems. Saudi opening helps. Strong momentum. Valuations high and EPS growth limited. Poland Strong pension fund uptake. Bond yields at new lows while 2014-5 GDP still likely to avg 3% More rate cuts will hurt bank NIMs. Tusk move to EU presidency introduces political risksGreece Growth returning. Banks still look cheap v peers and 2Q earnings indicate no new capital needed. High volatility from bond market and hedge fund-heavy investor base. AQR process.
Czech Republic Eurozone recovery. High payout ratios. Small not very liquid stock market with limited choices
Philippines Rising investment spending, improving consumption driven by steady remittances flow, fast-growing non-electronics exports, positive CA position, ample domestic liquidity
Sharp increase in interest rates, upward inflation pressures, disruption to government infrastructure spending momentum, sharp currency weakness
Hungary Eurozone recovery. Current account now in surplus. PM Orbans long and consistent track record of high effective taxation. Low growth hurts.Source: J.P. Morgan. Updated as of 10 September 2014
7Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
Profit Outlook: Earnings Forecast Matrices for Countries and SectorsWeight EPS Growth Weight EPS Growth Weight EPS Growth
EM (%) J.P. Morgan Consensus China (%) J.P. Morgan Consensus India (%) J.P. Morgan ConsensusMedian 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015
Total Market 100.0 - - - 11.5 6.9 11.7 Total Market 100.0 12.0 9.6 11.7 10.5 8.7 10.5 Total Market 100 13.8 13.9 17.6 17.3 15.7 16.1Consumer Discretionary 9.0 - - - 11.3 8.5 14.9 Consumer Discretionary 5.3 18.1 20.8 19.7 20.4 23.7 17.5 Consumer Discretionary 6.7 13.1 13.4 12.4 17.9 18.5 15.7Consumer Staples 8.0 - - - 11.6 10.9 17.4 Consumer Staples 4.8 9.2 6.8 19.8 6.0 3.5 21.6 Consumer Staples 11.0 15.1 16.6 17.0 17.4 19.9 16.9Energy 10.6 - - - 6.9 0.1 2.8 Energy 14.5 -3.8 1.3 12.2 2.5 3.9 7.2 Energy 12.6 8.3 5.8 12.2 11.0 9.0 15.3Financials 27.9 - - - 11.9 7.3 12.3 Financials 35.6 11.4 9.8 10.0 12.0 8.4 8.8 Financials 18.8 11.6 13.4 21.0 17.2 18.7 18.0Health Care 2.0 - - - 17.7 20.5 20.6 Health Care 1.9 16.1 10.3 15.0 22.0 22.0 19.4 Health Care 8.9 18.5 20.5 23.2 18.5 17.5 20.8Industrials 6.5 - - - 10.4 35.4 30.1 Industrials 6.2 10.5 17.5 15.3 6.4 5.6 18.2 Industrials 5.7 21.9 9.5 17.4 28.9 23.8 17.3Information Technology 16.4 - - - 18.9 7.6 9.3 Information Technology 13.2 53.8 53.8 29.7 21.0 47.4 30.1 Information Technology 21.8 16.6 17.4 12.7 12.4 12.9 12.9Materials 8.4 - - - 8.7 6.5 19.2 Materials 2.8 8.5 23.5 19.8 4.6 12.2 20.2 Materials 7.5 4.7 22.2 31.5 20.0 19.4 16.3Telecommunication Services 7.7 - - - 4.8 -7.6 11.7 Telecommunication Services 11.9 12.8 -11.2 -1.2 8.4 -6.3 1.8 Telecommunication Services 2.9 46.4 49.2 34.9 21.3 26.9 19.0Utilities 3.5 - - - 9.0 35.8 6.3 Utilities 3.9 32.1 17.7 15.2 18.8 20.5 12.2 Utilities 4.0 6.7 4.3 7.4 12.0 12.4 10.3
Weight EPS Growth Weight EPS Growth Weight EPS GrowthIndonesia (%) J.P. Morgan Consensus Korea (%) J.P. Morgan Consensus Malaysia (%) J.P. Morgan Consensus
Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015Total Market 100.0 13.0 12.2 11.4 13.8 9.7 12.9 Total Market 100.0 16.3 15.2 17.0 19.6 11.5 14.0 Total Market 100.0 7.6 7.1 8.8 7.4 2.8 9.2Consumer Discretionary 17.7 35.5 11.5 14.9 23.2 11.3 15.8 Consumer Discretionary 18.4 11.8 12.2 14.0 10.3 9.2 9.9 Consumer Discretionary 9.3 6.4 11.8 8.5 6.4 2.6 13.1Consumer Staples 12.3 19.1 17.1 11.2 21.2 31.3 15.9 Consumer Staples 6.1 24.1 21.1 12.5 28.3 21.9 16.6 Consumer Staples 9.5 13.7 10.3 5.6 11.0 8.3 8.5Energy 3.3 -1.9 NA 2.0 4.5 NA 1.4 Energy 1.5 -3.7 -3.9 31.3 -14.4 -15.1 64.6 Energy 4.5 10.4 30.2 17.5 10.2 12.4 11.4Financials 35.2 6.1 15.7 10.1 9.5 9.6 13.3 Financials 15.4 23.6 39.6 8.7 34.2 50.2 8.8 Financials 34.4 8.1 3.9 8.8 6.6 0.6 8.3Health Care 2.7 14.1 14.1 19.7 14.1 14.1 19.7 Health Care 0.6 69.5 73.4 33.3 69.5 73.4 33.3 Health Care 2.3 19.3 19.3 28.3 17.5 17.5 24.5Industrials 3.8 18.9 17.8 18.0 20.6 20.6 8.7 Industrials 11.4 12.5 NM 77.8 17.1 NM 63.8 Industrials 13.4 14.5 8.8 14.5 7.0 2.8 11.5Information Technology 0.0 NA NA NA NA NA NA Information Technology 35.0 61.9 -5.4 8.4 35.9 -11.3 4.3 Information Technology 0.0 NA NA NA NA NA NAMaterials 6.5 10.2 10.2 13.0 9.1 9.2 10.7 Materials 8.5 6.0 36.9 32.6 6.6 38.2 35.4 Materials 4.3 6.6 11.0 4.6 4.6 7.7 9.2Telecommunication Services 13.4 6.1 4.1 8.8 5.7 3.8 13.9 Telecommunication Services 1.2 7.9 NM 201.7 -4.8 NM 220.0 Telecommunication Services 10.6 -5.3 -1.1 3.8 1.0 4.0 8.2Utilities 5.0 4.3 4.3 14.0 -17.5 -17.5 6.1 Utilities 2.0 486.2 NM NM 3960.6 NM NM Utilities 11.7 0.5 8.3 5.2 -6.8 0.9 6.0
Weight EPS Growth Weight EPS Growth Weight EPS GrowthPhilippines (%) J.P. Morgan Consensus Taiwan (%) J.P. Morgan Consensus Thailand (%) J.P. Morgan Consensus
Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015Total Market 100.0 5.3 5.6 14.3 8.0 6.5 13.8 Total Market 100.0 13.6 21.0 7.7 15.2 20.3 8.0 Total Market 100.0 9.4 12.5 14.0 10.0 9.5 13.6Consumer Discretionary 3.8 20.1 20.1 20.5 17.9 17.9 16.5 Consumer Discretionary 4.0 10.8 -40.4 13.3 10.7 -42.5 12.2 Consumer Discretionary 4.3 7.8 8.1 14.6 7.8 -1.9 13.3Consumer Staples 7.0 18.0 18.0 22.5 17.3 17.3 17.8 Consumer Staples 2.7 14.4 12.2 7.6 14.4 12.2 7.6 Consumer Staples 9.2 18.3 106.8 36.4 17.0 109.5 35.4Energy 0.0 NA NA NA NA NA NA Energy 0.6 NA NA 3.8 NA NA 6.6 Energy 19.9 7.7 9.3 14.3 10.9 6.4 8.1Financials 39.7 10.4 4.5 15.5 5.3 7.5 15.4 Financials 17.9 18.2 14.0 1.3 15.2 11.9 -2.6 Financials 36.4 12.7 10.3 10.7 8.2 7.8 12.2Health Care 0.0 NA NA NA NA NA NA Health Care 0.1 -23.8 -23.8 24.9 -23.8 -23.8 24.9 Health Care 3.5 21.5 21.4 19.7 21.5 21.4 19.7Industrials 25.2 4.4 6.4 16.3 4.4 3.9 15.0 Industrials 2.9 14.2 52.0 12.5 28.6 30.2 59.2 Industrials 5.1 -0.9 -11.4 18.3 -2.4 -11.2 17.8Information Technology 0.0 NA NA NA NA NA NA Information Technology 57.7 18.1 34.3 10.2 18.7 35.1 11.2 Information Technology 0.0 NA NA NA NA NA NAMaterials 0.0 NA NA NA NA NA NA Materials 10.0 17.9 13.2 7.4 16.5 12.5 6.2 Materials 10.3 1.3 4.3 12.1 -4.0 -2.1 16.4Telecommunication Services 18.6 4.9 5.0 6.0 8.0 3.8 4.5 Telecommunication Services 4.2 -2.4 -3.1 -4.9 -2.8 -3.4 -2.2 Telecommunication Services 9.7 -1.0 38.0 20.6 3.4 44.7 27.4Utilities 5.8 0.2 0.1 15.1 10.4 9.5 23.8 Utilities 0.0 NA NA NA NA NA NA Utilities 1.5 0.4 0.4 3.4 11.5 11.5 1.0
Weight EPS Growth Weight EPS Growth Weight EPS GrowthSouth Africa (%) J.P. Morgan Consensus Brazil (%) J.P. Morgan Consensus Mexico (%) J.P. Morgan Consensus
Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015Total Market 100.0 - - - 11.7 12.0 12.7 Total Market 100.0 - - - 7.4 3.5 14.6 Total Market 100.0 - - - 5.8 -1.8 19.1Consumer Discretionary 24.3 - - - 16.8 24.4 22.3 Consumer Discretionary 5.5 - - - 14.2 26.3 30.9 Consumer Discretionary 9.2 - - - 7.5 8.8 16.9Consumer Staples 4.8 - - - 10.2 10.3 15.2 Consumer Staples 15.1 - - - 15.2 14.3 19.3 Consumer Staples 24.5 - - - 10.0 8.4 13.0Energy 10.8 - - - 2.6 2.9 1.5 Energy 16.3 - - - 7.4 8.0 26.4 Energy 0.0 - - - NA NA NAFinancials 27.5 - - - 11.9 10.2 11.7 Financials 34.3 - - - 3.5 10.0 13.5 Financials 17.9 - - - -14.9 -19.4 21.0Health Care 6.2 - - - 18.0 23.0 17.4 Health Care 0.7 - - - 11.2 10.9 45.1 Health Care 1.0 - - - 14.6 14.6 21.8Industrials 3.3 - - - 6.1 9.0 9.6 Industrials 4.8 - - - 10.2 -6.2 20.2 Industrials 10.5 - - - 1.4 -3.3 12.2Information Technology 0.0 - - - NA NA NA Information Technology 3.2 - - - 27.0 24.7 15.0 Information Technology 0.0 - - - NA NA NAMaterials 9.2 - - - 9.4 12.6 23.2 Materials 12.5 - - - -13.4 -16.1 6.5 Materials 17.1 - - - 19.1 -21.6 118.8Telecommunication Services 13.9 - - - 9.2 11.1 8.2 Telecommunication Services 2.8 - - - 0.6 -71.9 42.6 Telecommunication Services 19.7 - - - 12.3 12.3 2.8Utilities 0.0 - - - NA NA NA Utilities 4.9 - - - 5.8 98.2 -7.6 Utilities 0.0 - - - NA NA NA
Weight EPS Growth Weight EPS Growth Weight EPS GrowthRussia (%) J.P. Morgan Consensus Poland (%) J.P. Morgan Consensus Turkey (%) J.P. Morgan Consensus
Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015Total Market 100.0 - - - 8.6 -2.9 -0.1 Total Market 100.0 - - - 4.8 -1.3 6.5 Total Market 100.0 - - - 3.7 -1.6 18.0Consumer Discretionary 0.0 - - - NA NA NA Consumer Discretionary 6.1 - - - -8.1 -13.0 43.3 Consumer Discretionary 4.6 - - - 15.7 13.6 17.6Consumer Staples 7.7 - - - 10.4 10.4 22.7 Consumer Staples 1.3 - - - 2.5 2.5 16.6 Consumer Staples 15.2 - - - 5.0 -47.1 27.5Energy 56.3 - - - -2.6 -4.4 -7.4 Energy 10.5 - - - 72.1 61.8 5.0 Energy 4.4 - - - 1.0 1.0 14.5Financials 16.1 - - - -5.8 -9.3 25.5 Financials 53.4 - - - 6.9 2.4 10.7 Financials 48.8 - - - -1.7 -0.5 19.2Health Care 0.0 - - - NA NA NA Health Care 0.0 - - - NA NA NA Health Care 0.0 - - - NA NA NAIndustrials 0.0 - - - NA NA NA Industrials 0.0 - - - NA NA NA Industrials 12.4 - - - 13.2 8.8 22.0Information Technology 0.0 - - - NA NA NA Information Technology 0.0 - - - NA NA NA Information Technology 0.0 - - - NA NA NAMaterials 9.9 - - - 155.6 120.2 23.7 Materials 11.5 - - - -22.1 -34.9 17.6 Materials 4.7 - - - 16.1 29.5 0.4Telecommunication Services 8.9 - - - -7.9 -16.0 5.9 Telecommunication Services 3.2 - - - 42.3 42.3 -11.5 Telecommunication Services 9.9 - - - 34.6 14.4 11.0Utilities 1.1 - - - 62.5 NA -5.8 Utilities 14.0 - - - -7.2 -6.4 -13.3 Utilities 0.0 - - - NA NA NA
Source: I/B/E/S, MSCI, J.P. Morgan estimates. Updated as of 10 September 2014Note: Average earnings growth calculated based on earnings aggregate of MSCI constituents. Consensus numbers are used for stocks not covered by JPMorgan under J.P. Morgan forecasts calculation. Median numbers are for the year 2014.
11 September 2014
Emerging Markets Equity Strategy
J.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
Monitoring the Trend in Country EPS Forecasts (2014 and 2015)
11 September 2014
World EM Asia EM Europe
Korea
Emerging Markets (EM)
ChinaEM Latin America Brazil
90
95
100
105
110
115
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2015
2014
80
85
90
95
100
105
110
115
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2
2014
2015
85
90
95
100
105
110
115
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
2
2015
75
80
85
90
95
100
105
110
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
2015
2
105
110
115
2014
2015
95
100
105
110
2015
100
110
120
2015
90
100
110
2015
8
Source: I/B/E/S Updated as of 3 September 2014Notes: The dashboard aims to show changes in earnings expectations. All year ends are for December. EPS figures are normalized, starting at 100 on base date Feb 2013 for ease of comparison. These numbers are directly from IBES aggregate and may differ from those in the growth expectations pages where adjustments are made for exceptional items.
Taiwan South Africa India Russia
22 2222 220
85
90
95
100
105
110
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2
2014
2015
95
100
105
110
115
120
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
2015
90
95
100
105
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
80
85
90
95
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
70
80
90
100
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
70
80
90
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
2015
90
95
100
105
110
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2015
2014
85
95
105
115
125
135
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
2015
8
9Emerging Markets Equity StrategyJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
Monitoring the Trend in Country EPS Forecasts (2014 and 2015)
Updated as of 3 September 2014
Source: I/B/E/SNotes: The dashboard aims to show changes in earnings expectations. All year ends are for December. EPS figures are normalized, starting at 100 on base date Feb 2013 for ease of comparison. These numbers are directly from IBES aggregate and may differ from those in the growth expectations pages where adjustments are made for exceptional items. Countries earnings revisions are in local currencies term whereas APxJ regions earnings revisions is in US $ terms
11 September 2014
Mexico Malaysia
Poland
Czech. Republic
Turkey
Indonesia
C C
Thailand
Philippines
85
90
95
100
105
110
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
2
2015
75
80
85
90
95
100
105
110
115
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
2015
85
90
95
100
105
110
115
120
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
2015
80
85
90
95
100
105
110
115
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2015
2014
75
80
85
90
95
100
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2015
2014
95
100
105
110
115
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
2015
70 75 80 85 90 95
100 105 110 115
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2
2015
2014
22
Hungary
40
50
60
70
80
90
100
110
120
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
2
2015
80
85
90
95
100
105
110
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2
2014
2015
Chile
70 75 80 85 90 95
100 105 110 115 120
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
2
2015
Greece
5
25
45
65
85
105
125
145
Feb-13 Jul-13 Dec-13 May-14 Sep-14
2014
2
2015
10
Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
Monitoring the Trend in Sector EPS Forecasts (2014 and 2015)
Source: I/B/E/S Updated as of 3 September 2014
Notes: The dashboard aims to show changes in earnings expectations. All year ends are for December. EPS figures are normalized, starting at 100 on base date Feb 2013 for ease of comparison. These numbers are directly from IBES aggregate and may differ from those in the growth expectations pages where adjustments are made for exceptional items. Sector earnings revisions are in US$
11 September 2014
Financials
Energy
Information Technology Industrials
Telecom Materials Utilities
Consumer Staples Consumer Discretionary
Health Care
Emerging Markets
80 85 90 95
100 105 110 115
Feb 13 Jul 13 Dec 13 May 14 Sep 14
2014
2015
85
90
95
100
105
Feb 13 Jul 13 Dec 13 May 14 Sep 14
2014
2015
90
95
100
105
110
115
120
Feb 13 Jul 13 Dec 13 May 14 Sep 14
2015
2014
60
70
80
90
100
110
Feb 13 Jul 13 Dec 13 May 14 Sep 14
2015
2014
80
90
100
110
120
Feb 13 Jul 13 Dec 13 May 14 Sep 14
2014
2015
55
65
75
85
95
105
115
Feb 13 Jul 13 Dec 13 May 14 Sep 14
2014
2015
80 85 90 95
100 105 110 115
Feb 13 Jul 13 Dec 13 May 14 Sep 14
2015
2014
75
85
95
105
115
Feb 13 Jul 13 Dec 13 May 14 Sep 14
2015
2014
70
80
90
100
110
Feb 13 Jul 13 Dec 13 May 14 Sep 14
2014
2015
85
90
95
100
105
110
115
120
Feb 13 Jul 13 Dec 13 May 14 Sep 14
2015
2014
90
95
100
105
110
115
120
Feb 13 Jul 13 Dec 13 May 14 Sep 14
2014
2015
11
Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599,[email protected]
Value: PE Matrices for Countries and Sectors
12-month forward PE
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EM
F E
ME
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EM
F LA
TAM
*
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F A
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Taiw
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Chi
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Indi
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ppin
es
Consumer Discretionary 16.9 12.3 17.9 20.8 10.2 7.6 15.6 11.2 14.6 15.7 15.7 21.8 32.9Consumer Staples 16.4 20.9 19.5 20.1 22.2 20.5 21.2 22.5 32.9 21.0 21.4 23.0 27.1Energy 14.4 7.4 4.8 10.3 10.4 10.4 25.3 10.3 11.6 16.7 15.0 9.5 NAFinancials 13.3 9.4 10.5 12.0 8.4 NA 11.8 5.9 16.3 12.6 11.8 11.1 19.8Health Care 15.9 21.5 19.9 19.1 22.2 16.2 37.6 21.7 26.2 44.3 31.8 35.7 NAIndustrials 15.2 15.4 13.1 21.5 14.6 16.1 24.4 10.8 21.0 15.2 14.5 28.8 17.2Information Technology 14.7 12.2 NA 18.3 12.1 8.1 12.8 24.6 18.2 NA NA NA NAMaterials 16.5 12.6 11.9 11.9 13.3 14.1 18.9 8.7 11.8 15.0 14.9 11.2 NATelecommunication Services 14.0 15.3 12.9 15.5 16.6 24.1 18.6 16.3 19.5 22.9 18.2 23.6 19.4Utilities 15.6 11.9 10.9 11.3 12.5 NA NA 13.2 12.0 14.2 12.6 16.2 14.6Market Aggregate 16.0 11.0 9.1 13.1 11.4 9.9 13.7 9.3 16.6 15.3 14.6 13.1 19.2Sector Neutral** 14.7 11.0 10.7 14.3 11.3 10.6 15.4 10.0 16.2 14.8 14.0 13.7 15.3
12-month forward PE
EM
F E
ME
A*
Rus
sia*
Sou
th A
fric
a*
Pol
and*
Turk
ey*
Gre
ece*
UA
E*
Qat
ar*
EM
F LA
TAM
*
Bra
zil*
Mex
ico*
Chi
le*
Consumer Discretionary 17.9 NA 18.2 25.1 11.7 15.8 NM NA 20.8 17.5 28.0 19.9Consumer Staples 19.5 20.2 16.6 19.9 24.9 NA NA NA 20.1 18.5 22.6 17.3Energy 4.8 4.0 10.1 11.7 9.7 NA NA NA 10.3 10.0 NA 17.3Financials 10.5 4.7 12.1 14.7 8.6 NA 16.8 15.5 12.0 11.0 16.1 12.1Health Care 19.9 NA 20.6 NA NA NA NA NA 19.1 21.4 16.4 NAIndustrials 13.1 NA 13.1 NA 10.0 NA 25.8 13.9 21.5 22.7 21.7 20.3Information Technology NA NA NA NA NA NA NA NA 18.3 18.3 NA NAMaterials 11.9 9.7 13.3 13.6 10.3 30.1 NA NA 11.9 7.6 36.0 20.1Telecommunication Services 12.9 8.7 15.4 39.0 10.5 15.9 NA 20.4 15.5 21.1 14.6 12.6Utilities 10.9 7.1 NA 11.3 NA 10.6 NA 13.7 11.3 9.2 NA 15.7Market Aggregate 9.1 4.7 13.8 13.9 10.0 - 17.3 15.7 13.1 11.0 19.6 15.7Sector Neutral** 10.7 7.2 13.0 15.2 10.7 12.0 13.6 13.2 14.3 13.0 15.0 14.6
Source: IBES, MSCI, J.P. Morgan estimates. Note: PEs are derived from bottom-up calculations of each individual MSCI constituents using JPM estimates for covered stocks and IBES estimates for the rest.* 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. Updated as of 10 September 2014**Sector neutral PE are calculated by using sector weights of MSCI EM and sector PE of respective markets (MSCI EM sector PE used where country sector does not exist)
11 September 2014
12
Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599,[email protected]
Value: Distribution Tables for PE, PBR, DY and RoE
2014E: Price to Earnings Ratio (x) 2014E: Price to Book Value Ratio (x)Weighted Quartiles Weighted QuartilesAverage Min Lower Median Higher Max Average Min Lower Median Higher Max
Global* 15.7 2.8 12.7 16.1 21.0 518.9 Global* 1.9 0.1 1.2 1.9 3.2 50.5USA* 17.3 7.1 14.3 17.1 21.8 518.9 USA* 2.4 0.3 1.6 2.7 4.3 50.5Europe* 15.3 6.0 12.9 16.0 19.9 99.7 Europe* 1.7 0.1 1.2 2.0 3.2 29.8Japan* 15.6 5.5 12.4 15.7 21.1 80.9 Japan* 1.2 0.5 0.9 1.3 1.7 11.6Emerging Markets* 11.9 2.8 11.4 15.5 22.2 398.2 Emerging Markets* 1.5 0.2 1.1 1.8 3.2 48.6China 10.1 3.9 8.8 12.3 18.4 86.5 China 1.5 0.3 1.0 1.3 2.4 11.4Brazil* 12.1 4.4 11.1 16.8 22.0 48.9 Brazil* 1.5 0.2 1.1 1.7 4.1 16.3Korea 11.0 6.4 11.6 15.6 24.0 143.9 Korea 1.1 0.4 0.9 1.1 1.7 11.1Taiwan 14.4 5.0 13.1 15.6 21.0 171.7 Taiwan 1.9 0.7 1.2 1.6 2.6 10.1South Africa* 14.9 7.8 11.3 14.4 17.7 92.2 South Africa* 2.5 0.4 1.6 2.5 4.2 17.7India 18.7 4.5 13.8 18.6 29.4 110.0 India 2.9 0.6 1.4 2.9 5.3 43.1Russia* 4.7 2.8 4.4 6.7 11.0 23.2 Russia* 0.5 0.2 0.5 0.8 1.7 6.2Mexico* 22.4 9.9 19.1 24.2 27.0 48.1 Mexico* 2.8 1.3 2.4 3.1 3.6 15.7Malaysia 16.2 9.5 12.9 17.1 22.4 52.3 Malaysia 2.1 0.7 1.5 2.0 2.7 40.2Greece - 14.2 14.6 17.6 22.3 48.9 Greece 1.1 0.5 1.0 1.1 1.8 3.1UAE 18.2 12.3 13.9 15.5 27.0 40.0 UAE 2.1 1.8 2.0 2.1 2.8 3.5Qatar 17.1 11.5 13.4 14.5 19.8 398.2 Qatar 2.6 1.4 1.7 2.5 3.2 3.9Chile* 18.4 11.6 13.6 18.7 22.8 39.0 Chile* 1.6 0.7 1.4 1.8 2.6 3.3Indonesia 15.8 8.3 13.9 16.2 24.0 60.2 Indonesia 3.3 1.1 2.4 3.5 4.5 48.6Turkey* 11.3 7.6 10.2 11.0 12.3 31.6 Turkey* 1.5 0.8 1.2 1.5 2.9 12.1Thailand 14.4 9.2 11.6 16.9 31.9 67.3 Thailand 2.1 0.9 1.4 2.2 5.0 20.1Poland* 14.7 8.8 11.2 15.9 17.9 35.8 Poland* 1.4 0.4 0.9 1.6 2.1 10.2Czech Republic* 13.4 11.5 13.3 15.0 17.0 19.0 Czech Republic* 1.5 1.3 1.5 1.7 1.8 1.9Egypt* 23.5 9.8 11.1 12.4 19.3 26.3 Egypt* 1.8 0.8 0.9 0.9 2.0 3.0Philippines 21.1 14.1 16.1 20.6 26.5 37.3 Philippines 3.0 1.3 2.1 2.9 4.0 8.4Hungary* 12.1 10.7 11.0 11.2 14.5 17.8 Hungary* 0.8 0.7 0.7 0.8 1.1 1.3
2014E: Dividend Yield (%) 2014E: Return on Equity (%)Weighted Quartiles Weighted QuartilesAverage Min Lower Median Higher Max Average Min Lower Median Higher Max
Global* 2.6 0.0 1.2 2.2 3.6 11.7 Global* 12.4 -10.9 7.9 12.3 18.5 354.0USA* 2.1 0.0 0.6 1.7 2.8 11.5 USA* 14.4 0.6 9.6 15.4 21.9 261.7Europe* 3.6 0.0 2.1 3.1 4.3 11.5 Europe* 11.2 1.5 8.2 12.7 18.3 151.4Japan* 2.1 0.0 1.2 1.7 2.4 4.3 Japan* 7.8 1.3 6.2 8.4 10.8 47.2Emerging Markets* 2.8 0.0 1.2 2.3 3.7 11.7 Emerging Markets* 12.7 -10.9 8.1 12.6 18.5 354.0China 3.2 0.0 1.3 2.5 3.9 9.2 China 15.2 2.4 8.9 12.7 17.1 34.2Brazil* 4.0 0.0 1.6 3.3 4.9 11.7 Brazil* 12.3 -4.4 7.6 13.0 22.4 82.3Korea 1.3 0.0 0.4 1.1 1.7 6.9 Korea 10.1 0.8 4.8 7.6 11.9 27.6Taiwan 2.9 0.0 2.1 3.4 4.5 8.6 Taiwan 13.5 0.6 7.3 10.6 16.9 42.5South Africa* 3.2 0.0 2.2 3.6 4.5 10.1 South Africa* 17.4 0.4 12.9 18.3 23.4 101.0India 1.5 0.0 0.6 1.2 1.9 5.0 India 16.5 1.4 10.7 15.7 21.7 105.8Russia* 5.3 0.9 3.1 4.5 5.8 8.3 Russia* 11.7 5.3 10.3 12.8 21.8 38.3Mexico* 1.4 0.0 0.3 1.0 1.9 4.1 Mexico* 12.5 -4.6 9.3 12.6 15.6 65.2Malaysia 3.2 0.6 2.1 2.7 3.7 7.5 Malaysia 13.2 3.3 9.4 12.6 14.5 179.3Greece 1.0 0.0 0.0 1.0 2.1 3.5 Greece - -10.9 -1.3 3.8 12.7 14.6UAE 2.3 0.7 1.3 2.3 3.6 4.7 UAE 11.5 7.0 8.6 11.7 16.6 20.0Qatar 3.7 2.0 2.9 3.5 3.9 6.7 Qatar 15.2 0.8 11.8 14.3 18.2 24.3Chile* 2.6 0.0 1.7 3.0 3.8 6.0 Chile* 8.9 2.6 7.9 10.6 13.2 21.7Indonesia 2.5 0.0 1.4 2.0 2.8 6.6 Indonesia 22.2 5.8 16.4 21.8 24.5 110.7Turkey* 3.0 0.7 1.5 2.1 4.4 10.1 Turkey* 13.8 4.7 11.6 14.7 19.6 38.3Thailand 3.0 0.0 1.4 2.8 3.8 6.2 Thailand 15.6 1.4 11.5 15.2 19.3 116.3Poland* 3.9 0.0 1.5 2.8 4.6 7.1 Poland* 9.5 -6.7 5.7 10.6 12.4 30.8Czech Republic* 5.4 4.8 5.2 5.6 6.2 6.8 Czech Republic* 11.4 9.2 10.1 11.0 11.8 12.6Egypt* 2.1 0.0 0.0 1.3 4.1 8.2 Egypt* 9.0 3.2 6.2 9.2 16.9 24.6Philippines 2.1 0.5 0.9 1.6 1.9 5.0 Philippines 15.0 7.3 11.3 14.3 18.7 25.0Hungary* 3.2 1.5 2.5 3.5 3.8 4.1 Hungary* 7.3 6.2 6.8 7.4 7.4 7.4
Source: Datastream, IBES, MSCI, J.P. Morgan estimates. Updated as of 10 September 2014Note: Weighted average numbers based on aggregate of MSCI constituents. Consensus numbers are used for stocks not covered by J.P. Morgan. * only consensus numbers are used
11 September 2014
13
Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
Value: Demand Classification: MSCI Emerging Markets Index Composition by Countries
MSCI Emerging Markets Free Index
Dom
estic
De
man
d
Glob
al Ca
pex
G lob
al Co
nsum
er
Glob
al Pr
ice
Take
rs
Tota
l
China 15.7 0.4 0.4 2.9 19.4India 3.5 1.5 0.1 1.8 6.8Indonesia 2.4 0.0 0.1 0.1 2.6Korea 6.0 2.7 4.6 1.6 14.9Malaysia 2.9 0.1 0.1 0.6 3.8Philippines 1.1 0.0 0.0 0.1 1.2Taiwan 4.1 3.4 3.4 1.1 11.9Thailand 1.8 0.0 0.0 0.5 2.3
Asia 37.6 8.1 8.6 8.5 62.9Czech Republic 0.2 0.0 0.0 0.0 0.2
Egypt 0.2 0.0 0.0 0.0 0.2
Hungary 0.1 0.0 0.0 0.1 0.2
Greece 0.6 0.0 0.0 0.0 0.7
Poland 1.3 0.0 0.0 0.3 1.6
Russia 1.6 0.0 0.0 3.2 4.8
South Africa 5.8 0.0 0.0 1.5 7.4
Turkey 1.5 0.0 0.0 0.1 1.6
UAE 0.5 0.1 0.6Qatar 0.5 0.1 0.6
EMEA 12.5 0.0 0.1 5.4 17.9
Brazil 7.9 0.1 0.1 3.0 11.1
Chile 1.4 0.0 0.0 0.0 1.4
Colombia 0.7 0.1 0.0 0.2 1.0
Mexico 4.4 0.4 0.1 0.4 5.3
Peru 0.2 0.0 0.0 0.2 0.4
LatAm 14.6 0.6 0.2 3.9 19.2
Total 64.7 8.7 8.9 17.7 100.0
Source: Datastream, MSCI. J.P. Morgan. MSCI emerging markets companies have been classified in five categories. Updated as of 10 September 2014Of the five categories, Global Consumer/Capex (Tech-Hardware) weighting equally divided between Global consumer and Global Capex.
11 September 2014
40
50
60
70
80
90
100
0 50
100 150 200 250 300 350 400
Jan 90 Oct 96 Jul 03 Apr 10
Relative to EM (rhs)
Absolute (lhs)
0
50
100
150
200
250
300
0 120 240 360 480 600 720 840 960
Jan-90 Oct-96 Jul-03 Apr-10
Relative to EM (rhs)
Absolute (lhs)
10
25
40
55
70
85
100
115
-40
30
100
170
240
310
380
450
Jan-90 Oct-96 Jul-03 Apr-10
Relative to EM (rhs)
Absolute (lhs)
EM Domestic Demand Sector Absolute and relative (vs EMF) Index
EM Global Consumer Sector Absolute and relative (vs EMF) Index
EM Global Price Taker Sector Absolute and relative (vs EMF) Index
-60
20
100
180
260
340
420
500
0
200
400
600
800
1000
1200
1400
Jan-90 Oct-96 Jul-03 Apr-10
Relative to EM (rhs)
Absolute (lhs)
EM Global Capex Sector Absolute and relative (vs EMF) Index
14
Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
Value: Equities relative to Bonds
Country 1-month 3-month 6-month 12-month 36-month 36-month annualisedBrazil 0.3 3.4 16.2 -4.7 20.5 6.4Chile 2.3 -1.0 5.8 -3.0 -7.4 -2.5China 2.2 9.9 14.1 7.2 25.2 7.8Colombia 0.8 1.8 7.9 -5.8 17.5 5.5Czech 7.3 7.0 12.8 21.3 12.5 4.0Hungary 9.7 -5.1 5.4 -22.1 -9.3 -3.2India 5.5 4.5 15.9 22.6 53.9 15.5Indonesia 0.4 2.7 8.4 10.3 28.2 8.6Malaysia 1.5 -1.3 0.5 3.3 31.5 9.6Mexico 2.8 4.6 12.9 1.0 37.8 11.3Peru -0.4 -0.5 3.8 2.7 -14.2 -5.0Poland 8.0 0.1 2.7 3.3 29.6 9.0Russia 7.0 2.3 12.2 0.8 4.1 1.3South Africa -0.6 -1.4 3.8 13.7 69.2 19.2Thailand 4.2 7.6 17.2 5.2 41.5 12.3Turkey -0.5 -5.0 19.7 -0.1 45.6 13.3Taiwan 4.1 5.4 13.0 19.9 35.3 10.6Philippines 5.6 5.4 3.5 17.7 75.9 20.7Korea -0.7 -4.2 -2.5 -5.4 14.2 4.5Romania 0.4 -0.9 11.1 17.5 NA NA
Country Generic 10 years Bond Maturity (years)Bond Yield To
Maturity Earnings Yield Dividend YieldDDM Implied
GrowthBrazil 11.5 8.7 9.1 9.1 4.1 12.3Chile 4.8 4.4 3.9 6.4 2.7 6.9China 4.3 6.2 4.2 10.7 3.4 6.3Colombia 7.0 6.7 5.8 5.0 2.7 8.3Czech 1.2 6.7 1.1 7.1 5.2 -1.5Hungary 4.6 5.0 3.7 10.0 3.7 4.8India 8.5 11.4 8.7 6.0 1.6 11.7Indonesia 8.2 11.8 8.3 6.8 2.6 11.1Malaysia 4.0 6.1 3.9 6.6 3.3 6.1Mexico 5.9 9.6 5.8 5.1 1.5 8.6Peru 5.2 11.5 5.5 4.3 1.1 8.1Poland 3.0 4.3 2.6 7.2 4.1 2.6Russia 9.6 5.8 9.3 21.3 6.0 12.9South Africa 8.2 12.5 8.1 7.2 3.5 10.4Thailand 3.7 6.2 3.3 7.6 3.2 5.9Turkey 9.0 5.1 8.9 10.0 3.2 10.7Taiwan 1.6 7.2 1.6 7.3 3.2 1.9Philippines 4.4 13.2 4.9 5.2 2.3 6.9Korea 3.1 8.0 3.0 10.1 1.3 6.2Romania 4.2 3.9 3.5 NA NA NA
Source: Bloomberg, J.P. Morgan, DataStream, MSCI, IBES Note: GBI-EM Bond Maturity and Yield to Maturity are used for each country. Updated as of 10 September 2014
11 September 2014
Relative outperformance of equities versus bonds by country (%)
J.P. Morgan's GBI - EM bond indices track local currency government bonds issued by emerging economies.
The indices are easily replicable and represent the local bond portfolio that can be accessed by an international investor.
For more information on these indices please visit www.morganmarkets.com or contact Gloria Kim at [email protected]
The table shows the difference between the MSCI equity benchmark returns in local currency and the GBI - EM benchmark returns for each country.
Positive numbers indicate outperformance by equities.
Relative value of equities versus bonds by country
For 'DDM Implied Growth', we use a dividend discount model based on expected payout ratios for 2008 (except Colombia and Peru where we use current trailing payout ratio)
Perpetual Implied Growth Rates are calculated based on the Gordon Growth Model:
G= R - D/V
G= Implied Growth RateR= Required Growth Rate (Risk free rate + Equity Risk Premium)D= Index DividendV= Index Value
Note: Equity risk premium of 4%. Risk free rates are 10-year benchmark or nearest equivalent.
15
Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
Economic Forecasts: Changes in Real GDP Forecasts
Real GDP Growth (% Y/Y) Change in Forecasts Past 3 months (%) Economic Momentum Inflation
2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 3Q14E 4Q14E 1Q15E 2Q15E 2014E 2015EUS 2.1 3.0 2.1 3.0 0.1 0.1 -0.4 -0.1 1.0 3.0 3.0 3.0 1.5 1.9Euro 0.8 1.8 1.0 1.5 -0.4 -0.2 -0.1 0.0 1.0 na na na 1.3 0.6Japan 0.9 1.4 1.1 1.2 -0.4 0.0 -0.3 -0.1 2.0 2.5 1.1 2.2 0.4 2.9China 7.3 7.3 7.4 7.2 0.1 0.1 0.1 0.0 7.6 7.4 7.1 7.2 2.6 2.2Brazil 0.2 1.5 0.8 1.6 -1.1 -0.3 -1.0 -0.4 0.1 2.6 1.1 na 6.2 6.3S Korea 3.6 4.0 3.6 3.8 -0.3 0.1 0.0 0.0 4.7 4.0 4.0 4.0 1.3 1.5Taiwan 3.8 3.7 3.5 3.6 0.3 -0.1 0.3 0.1 na 4.2 3.8 3.6 0.8 1.4South Africa 1.4 3.0 1.7 2.7 -0.4 -0.2 -0.7 -0.3 2.3 3.3 2.9 3.3 5.8 6.1India 5.3 6.5 4.7 5.4 0.0 0.0 0.0 0.0 4.0 4.7 5.9 7.5 10.1 8.5Russia 0.5 1.0 0.3 1.2 0.0 -0.8 -0.6 -0.7 0.8 1.0 0.5 0.8 6.8 7.2Mexico 2.7 3.8 2.6 3.8 -0.2 0.0 -0.4 0.0 3.9 3.7 3.6 4.0 3.8 4.1Malaysia 5.8 4.7 5.7 5.3 0.3 -0.4 0.5 0.3 4.0 5.5 5.0 4.0 2.1 2.7Chile 1.9 3.1 2.9 3.8 -1.0 -1.1 -0.5 -0.5 0.4 4.5 2.9 3.9 1.8 4.0Indonesia 4.9 5.3 5.2 5.6 0.0 -0.4 -0.1 -0.2 5.0 4.5 5.2 5.5 7.0 5.7Turkey 3.0 4.0 3.3 3.7 1.1 0.0 1.0 0.2 1.2 0.8 4.1 6.1 7.5 9.0Thailand 1.1 4.2 1.5 4.1 0.0 0.0 -0.2 0.0 na 4.0 4.2 4.2 2.2 2.6Poland 3.0 3.2 3.2 3.4 -0.1 0.0 0.0 -0.1 2.0 2.8 3.5 3.5 0.9 0.2Czech Republic 2.8 2.8 2.5 2.6 0.0 0.0 0.4 0.0 3.1 3.0 4.3 2.4 1.4 0.9Peru 3.3 5.5 4.5 5.5 -1.7 0.0 -0.8 -0.1 6.5 9.5 5.5 5.0 2.8 3.0Colombia 5.0 4.5 5.0 4.8 0.3 0.0 0.5 0.2 4.0 4.0 5.0 5.5 2.0 2.8Philippines 6.0 6.4 6.3 6.5 0.0 0.0 -0.1 0.0 5.7 5.7 6.6 6.6 2.9 4.2Hungary 3.3 2.6 2.9 2.5 0.3 0.1 0.7 0.3 2.0 2.5 3.0 2.5 1.7 0.1Qatar 1.8 2.4 5.9 6.3 -0.4 -0.1 0.4 0.2 - - - - 3.8 4.4UAE 2.0 2.7 4.1 4.2 0.0 0.0 0.1 0.1 - - - - 2.3 2.6Greece - - 0.3 1.7 - - 0.1 0.1 - - - - - -
Updated as of 10 September 2014Source: J.P. Morgan estimates, BloombergNote: Consensus estimates for Jordan, Egypt, Pakistan and Israel sourced from WES and Morocco from EIU
11 September 2014
J.P. Morgan Consensus J.P. Morgan Consensus GDP SAAR (% Y/Y)
2014E GDP Growth in EM: J.P. Morgan and Consensus Forecasts Consensus Forecasts for 2014E GDP growth in EM and DM
4.0
4.3
4.6
4.9
5.2
5.5
5.8
Jan-13 Apr-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 1.50
1.60
1.70
1.80
1.90
2.00
2.10
4.0 4.2 4.4 4.6 4.8 5.0 5.2 5.4 5.6 5.8
Jan-13 Apr-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14
DM consensus growth forecast (RHS)
EM consensus growth forecast (LHS) Consensus EM growth forecast
J.P. Morgan EM growth forecast
16
Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
11 September 2014
Economic Forecasts: Policy Rate Trends and ForecastsPolicy Rate
Country Official interest rate 3Q'13 4Q'13 1Q'14 2Q'14 Current 3Q'14F 4Q'14F 1Q'15F 2Q'15F Last Change Next ChangeDeveloped MarketsUnited States Federal funds rate 0.125 0.125 0.125 0.125 0.125 0.125 0.125 0.125 0.125 16 Dec 08 (-87.5bp) 3Q 15 (+25bp)Euro Area Refi Rate 0.50 0.25 0.25 0.15 0.05 0.05 0.05 0.05 0.05 4 Sep 14 (-10bp) 3Q 18 (+20bp)Japan Overnight Call Rate 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 5 Oct 10 (-5bp) On holdLatin AmericaBrazil SELIC overnight rate 9.00 10.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 2 Apr 14 (+25bp) On holdMexico Repo rate 3.50 3.50 3.50 3.00 3.00 3.00 3.00 3.00 3.00 6 Jun 14 (-50bp) 4Q 15 (+25bp)Chile Discount rate 5.00 4.50 4.00 4.00 3.50 3.25 3.00 3.00 2.75 14 Aug 14 (-25bp) 11 Sep 14 (-25bp)Europe, Middle East and AfricaCzech Republic 2-week repo rate 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 1 Nov 12 (-20bp) On holdHungary 2-week deposit rate 3.60 3.00 2.50 2.30 2.10 2.10 2.10 2.10 2.10 22 Jul 14 (-20bp) 4Q 15 (+20bp)Poland 7-day intervention rate 2.50 2.50 2.50 2.50 2.50 2.50 2.00 2.00 2.00 3 Jul 13 (-25bp) 4Q 14 (-50bp)Russia Rep Rate 5.50 5.50 7.00 7.50 8.00 8.00 8.00 7.75 7.50 25 Jul 14 (+50bp) 1Q 15 (-25bp)South Africa Repo rate 5.00 5.00 5.75 5.50 5.75 6.00 6.00 6.25 6.50 17 Jul 14 (+25bp) 18 Sep 14 (+25bp)Turkey Intbnk O/N 6.50 7.75 10.00 8.75 8.25 8.25 8.25 8.25 8.25 17 Jul 14 (-50bp) On holdEM Asia 5.51 5.55 5.61 5.59 5.58 5.59 5.63 5.64 5.64China 1-year working capital 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 7 Jul 12 (-31bp) On holdKorea Overnight call rate 2.50 2.50 2.50 2.50 2.25 2.25 2.25 2.25 2.25 14 Aug 14 (-25bp) On holdIndonesia BI rate 7.25 7.50 7.75 7.50 7.50 7.50 7.50 7.50 7.50 12 Nov 13 (+25bp) On holdIndia Repo rate 7.50 7.75 8.00 8.00 8.00 8.00 8.25 8.25 8.25 28 Jan 14 (+25bp) 4Q 14 (+25bp)Malaysia Overnight policy rate 3.00 3.00 3.00 3.00 3.25 3.50 3.50 3.50 3.50 10 Jul 14 (+25bp) 18 Sep 14 (+25bp)Philippines Reverse repo rate 3.50 3.50 3.50 3.50 4.00 4.00 4.00 4.00 4.00 11 Sep 14 (+25bp) -Thailand 1-day repo rate 2.50 2.25 2.00 2.00 2.00 2.00 2.00 2.25 2.50 12 Mar 14 (-25bp) 1Q 15 (+25bp)Taiwan Official discount rate 1.88 1.88 1.88 1.88 1.88 1.88 1.88 2.00 2.00 30 Jun 11 (+12.5bp) 1Q 15 (+12.5bp)
Source: J.P. Morgan Economics, Bloomberg. Bold figures on next column indicate tightening. Updated as of 10 September 2014
Change in policy rates Emerging Markets Policy rates
-550 -450 -350 -250 -150 -50 50 150
India Malaysia
China Japan
Taiwan Chile
Thailand Indonesia
Korea Poland Czech
S Africa EU
Philippines Brazil USA
Mexico Hungary
Change from 05 - 07 avg Forecast Change for now to 4Q 14
-4
0
4
8
12
16
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Nominal Policy Rates
Real Rates
17
Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
Economic Forecasts: Currency Movements and Forecasts
Source: Datastream, J.P. Morgan estimates, Bloomberg. Updated as of 10 September 2014
11 September 2014
Euro (EUR) Japansese Yen (JPY)
1.12
1.32
1.52
1.72
Jan 05 Aug 07 Apr 10 Nov 12 Jun 15
J.P. Morgan
Consensus
J.P. Morgan forecast: end Sep 14: 1.34 end Dec 14: 1.30 end Mar 15: 1.28
60
70
80
90
100
110
120
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
J.P. Morgan
Consensus
J.P. Morgan forecast: end Sep 14: 102 end Dec 14: 106 end Mar 15: 107
South Korean Won (KRW)
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
Consensus
J.P. Morgan
J.P. Morgan forecast: end Sep 14: 1000 end Dec 14: 1000 end Mar 15: 995
Taiwan Dollar (TWD)
27 28 29 30 31 32 33 34 35 36 37
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
Consensus
J.P. Morgan
J.P. Morgan forecast: end Sep 14: 30.70 end Dec 14: 30.80 end Mar 15: 30.80
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
Consensus
J.P. Morgan
J.P. Morgan forecast: end Sep 14: 2.30 end Dec 14: 2.35 end Mar 15: 2.45
Brazilian Real (BRL) Russian Ruble (RUB)
5.8
6.2
6.6
7.0
7.4
7.8
8.2
8.6
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
Consensus
J.P. Morgan
J.P. Morgan forecast: end Sep 14: 6.20 end Dec 14: 6.15 end Mar 15: 6.15
South African Rand (ZAR)
38.0
42.0
46.0
50.0
54.0
58.0
62.0
66.0
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
Consensus
J.P. Morgan J.P. Morgan forecast: end Sep 14: 60.00 end Dec 14: 60.00 end Mar 15: 60.50
Mexican Peso (MXN)
20
24
28
32
36
40
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
J.P. Morgan
Consensus
J.P. Morgan forecast: end Sep 14: 36.43 end Dec 14: 36.78 end Mar 15: 36.86
Indian Rupee (INR)
2.6
2.8
3.0
3.2
3.4
3.6
3.8
4.0
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
J.P. Morgan
Consensus
J.P. Morgan forecast: end Sep 14: 3.17 end Dec 14: 3.20 end Mar 15: 3.23
Malaysian Ringgit (MYR)
Polish Zloty (PLN)
Thai Baht (THB)
( ) C (C )
( )
S ( ) ( )
Chinese Yuan Renminbi (CNY)
9.5 10.1 10.7 11.3 11.9 12.5 13.1 13.7 14.3 14.9 15.5
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
J.P. Morgan
Consensus
J.P. Morgan forecast: end Sep 14: 13.00 end Dec 14: 12.90 end Mar 15: 13.10
5.0 6.0 7.0 8.0 9.0
10.0 11.0 12.0 13.0 14.0
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
Consensus
J.P. Morgan
J.P. Morgan forecast: end Sep 14: 11.00 end Dec 14: 10.75 end Mar 15: 11.00
26 28 30 32 34 36 38 40 42 44
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
Consensus
J.P. Morgan
J.P. Morgan forecast: end Sep 14: 32.50 end Dec 14: 33.00 end Mar 15: 33.00
1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
J.P. Morgan
Consensus
J.P. Morgan forecast: end Sep 14: 3.10 end Dec 14: 3.19 end Mar 15: 3.20
Turkish Lira (TRY)
1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.0 2.1 2.2 2.3 2.4 2.5
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
Consensus
J.P. Morgan
J.P. Morgan forecast: end Sep 14: 2.20 end Dec 14: 2.20 end Mar 15: 2.15
18
Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
Economic Forecasts: Currency Movements and Forecasts
Source: Datastream, J.P. Morgan estimates, Bloomberg. The expected % Gain vs USD for ARS is -28% Updated as of 10 September 2014
11 September 2014
Indonesian Rupiah (IDR) Hungarian Forint (HUF)
130 143 156 169 182 195 208 221 234 247 260
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
J.P. Morgan
Consensus
J.P. Morgan forecast: end Sep 14: 235 end Dec 14: 238 end Mar 15: 238
13
15
17
19
21
23
25
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
Consensus
J.P. Morgan
J.P. Morgan forecast: end Sep 14: 20.67 end Dec 14: 21.15 end Mar 15: 21.33
Czech Koruna (CZK) Peruvian Nuevo Sol (PEN)
Philippine Peso (PHP) Colombian Peso(COP)
2.4
2.7
2.9
3.2
3.4
3.7
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
J.P. Morgan
Consensus
J.P. Morgan forecast: end Sep 14: 2.81 end Dec 14: 2.83 end Mar 15: 2.84
Expected % Gain vs USD till Dec 2014 (J.P. Morgan)
-12
-9
-6
-3
0
3
6
COP
HUF
KRW
ILS
PLN
ZAR
INR
CZK
RUB
JPY
MYR
PHP
TRL
CNY
EUR
IDR
THB
BRL
TWD
MXN
ARS 1,500
1,700
1,900
2,100
2,300
2,500
2,700
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
J.P. Morgan
Consensus
J.P. Morgan forecast: end Sep 14: 1850 end Dec 14: 1875 end Mar 15: 1900
7,500
8,500
9,500
10,500
11,500
12,500
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
Consensus
J.P. Morgan
J.P. Morgan forecast: end Sep 14: 11900 end Dec 14: 11900 end Mar 15: 12000
36
40
44
48
52
56
60
Jan 05 Aug 07 Mar 10 Nov 12 Jun 15
J.P. Morgan
Consensus
J.P. Morgan forecast: end Sep 14: 43.50 end Dec 14: 44.00 end Mar 15: 44.25
Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
11 September 2014
Economic Forecasts: Credit RiskExternal (2013E) Fiscal Position Sovereign Ratings (Long Term Foreign Debt)
ForeignReserves 2013 2014F** 2014E 2014E 2013 2014F** 2013 2014F** Moody's S & P
(US$bil) %GDP %GDP (US$bil) %GDP % GDP % GDP % GDP % GDP Rating Action Date Rating Action DateChina 3993 2.1 1.8 809 8 -2.1 -2.1 23 21 Aa3 O/L changed to stable, Affirmed Apr-16-13 AA- Affirmed, O/L stable Nov-29-13Brazil 378 -3.6 -3.6 492 22 -3.3 -3.7 68 69 Baa2 O/L changed to stable, Affirmed Oct-02-13 BBB- Downgrade, O/L stable Mar-24-14Korea 368 6.1 5.8 418 29 0.9 1.0 36 35 Aa3 Upgrade, O/L changed to stable Aug-27-12 A+ Affirmed, O/L stable Sep-24-13Taiwan 423 11.3 11.0 146 28 -1.8 -2.0 41 41 Aa3 Affirmed, O/L stable Oct-09-13 AA- Affirmed, O/L stable May-26-14South Africa 42 -5.8 -5.1 148 41 -4.0 -4.0 43 45 Baa1 (-) Downgrade, O/L (-) Nov-25-13 BBB (-) Affirmed, O/L (-) Dec-20-13India 291 -1.7 -2.3 476 36 -4.6 -4.1 67 68 Baa3 Affirmed, O/L stable Nov-26-12 BBB- (-) Affirmed, O/L (-) Nov-08-13Russia 466 1.6 3.4 720 36 -0.3 0.6 14 15 Baa1 - Affirmed, O/L stable May-16-12 BBB- (-) Downgrade, O/L (-) Apr-25-14Mexico 191 -1.8 -2.3 226 17 -2.3 -3.5 44 46 A3 Upgrade, O/L stable Feb-05-14 BBB+ Upgrade, O/L stable Dec-19-13Malaysia 127 3.8 4.7 60 18 -4.0 -3.5 57 57 A3 Affirmed, O/L stable Jun-07-12 A- Affirmed, O/L stable Nov-20-13Chile 40 -3.8 -1.7 104 41 -0.7 -2.0 13 13 Aa3 Affirmed, O/L stable Oct-29-13 AA- Affirmed, O/L stable Dec-16-13Indonesia 111 -3.6 -3.0 363 31 -2.4 -2.5 26 27 Baa3 Affirmed, O/L stable Jul-16-12 BB+ O/L changed to stable, Affirmed May-02-13Poland 76 -1.8 -2.1 363 66 -4.3 -3.5 58 50 A2 Affirmed, O/L stable Oct-04-11 A- Affirmed, O/L stable Feb-07-14Turkey 113 -7.9 -5.8 376 45 -1.2 -2.1 36 35 Baa3 (-) Downgrade, O/L (-) Apr-04-14 BB+ (-) Affirmed, O/L (-) May-23-14Thailand 159 -0.7 1.5 86 23 -3.4 -2.8 47 48 Baa1 Affirmed, O/L stable Jun-02-14 BBB+ Affirmed, O/L stable May-22-14Czech Republic 57 -1.1 0.2 105 54 -2.9 -2.9 48 49 A1 Affirmed, O/L stable Jul-19-13 AA- Affirmed, O/L stable Jan-24-14Peru 65 -4.5 -5.0 52 25 0.8 -0.2 19 17 Baa2 (+) Upgrade, O/L (+) Aug-16-12 BBB+ Upgrade, O/L stable Aug-19-13Egypt* 17 na na na na na na na na Caa1 (-) Affirmed, O/L (-) Jul-25-13 B- Affirmed, O/L stable May-16-14Colombia 1 -3.3 -3.8 73 18 -1.2 -1.2 32 32 Baa3 (+) O/L changed to (+), Affirmed Jul-08-13 BBB Affirmed, O/L stable Apr-29-14Philippines 81 4.5 2.7 61 22 -1.4 -2.0 41 39 Baa3 (+) Upgrade, O/L changed to (+) Oct-03-13 BBB Upgrade, O/L stable May-08-14Hungary 32 3.7 2.5 152 111 -2.2 -3.0 80 80 Ba1 (-) Affirmed, O/L stable Aug-15-13 BB O/L changed to stable, Affirmed Mar-28-14Greece 0.8 na na na na na na na na - - - - - -Emerging Asia 5553 2.2 2.1 2275 15 -2.0 -1.5 27 27 - - - - - -Emerging Europe 803 -0.9 0.3 1903 48 -2.0 -1.7 29 28 - - - - - -Latin America 724 -2.4 -2.6 1199 22 -2.9 -2.9 42 43 - - - - - -
Source: Bloomberg, J.P. Morgan. Source: Bloomberg, J.P. Morgan. Source: Bloomberg, J.P. Morgan. Source: Bloomberg, J.P. Morgan.Source: CEIC, J.P. Morgan estimates, Moody's, Standard & Poor's, Bloomberg * Data from World Economic Outlook for April 2010 for Current Account data, ** F denotes forecast. Note: Forex reserves as of August 2014 or latest available data. Updated as of 10 September 2014
19
Current Account External Debt Fiscal Deficit Public Sector Debt
EMBI Global Spreads and Yields EMBI Asia Spreads and Yields EMBI Europe Spreads and Yields EMBI Latin America Spreads and Yields
4.0
5.0
6.0
7.0
8.0
9.0
0
100
200
300
400
500
Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Spread (L) Yield
3.2
3.7
4.2
4.7
5.2
5.7
6.2
100
150
200
250
300
350
400
Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Spread (L) Yield
3.0
4.0
5.0
6.0
7.0
8.0
100 150 200 250 300 350 400 450 500 550
Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Spread (L) Yield
5.0
5.5
6.0
6.5
7.0
7.5
200 250 300 350 400 450 500 550 600
Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Spread (L) Yield
20
Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
11 September 2014
Perspective: Emerging Markets' Balance Sheets
No. of Companies Debt/Equity Debt/Assets Debt/Mkt. Cap Asset Turnover Current Ratio Interest Coverage Altman Z ScoreChina 118 0.67 0.28 0.96 0.84 1.04 7.5 2.9Brazil 63 0.61 0.29 1.03 0.45 1.57 3.9 3.8Korea 85 0.28 0.17 0.29 0.87 1.37 10.8 4.7Taiwan 89 0.41 0.21 0.20 1.06 1.21 13.6 5.0South Africa 37 0.41 0.21 0.17 0.84 1.47 6.0 5.3India 58 1.02 0.37 0.40 0.75 1.23 4.7 5.7Russia 18 0.38 0.24 0.81 0.48 1.38 12.1 3.4Mexico 25 0.77 0.33 0.38 0.74 1.25 4.6 5.1Malaysia 36 0.63 0.31 0.32 0.47 2.08 6.3 4.7Chile 17 0.69 0.32 0.26 0.63 1.14 5.6 2.7Indonesia 24 0.39 0.22 0.13 0.84 1.88 14.5 7.6Turkey 18 0.67 0.30 0.45 1.20 1.43 6.4 4.4Thailand 21 0.78 0.35 0.40 1.20 1.43 5.7 4.7Poland 14 0.25 0.15 0.29 1.17 1.37 9.7 3.4Czech Republic 2 0.60 0.27 0.52 0.38 1.16 9.8 3.1Peru 2 0.25 0.18 0.14 0.45 3.37 24.6 4.2Egypt 3 0.71 0.29 0.67 0.26 1.57 2.8 2.5Colombia 8 0.38 0.23 0.41 0.37 1.07 4.7 3.4Philippines 14 0.72 0.32 0.25 0.40 1.40 5.1 3.7Hungary 2 0.38 0.20 0.40 1.02 1.46 6.3 4.2Greece 7 0.88 0.34 0.68 0.65 0.94 2.9 3.8
Source: Datastream, Bloomberg, J.P. Morgan. Updated as of January-14
2. For the debt to equity distribution chart, each box indicates quartile levels and markets with values exceeding the scale are indicated by the open-ended top box. The diamond indicates weighted average for each market.
Note: 1. All ratios are calculated from latest financial reports available ex Banks, Insurance and Diversified financials sector and calculations are based on weighted average of companies in the MSCI EMF universe. For Altman z-score, its application on company level is such that a score of less than 1.8 indicates bankruptcy likely, between 1.8-2.7 bankruptcy likely within 2 years and more than 3 most likely safe from bankruptcy. For market as a whole, the ratio is a weighted average of companies' z-score, thereby giving a general quality of companies in the market.
3. Quartile Distribution Charts: each quartile is separated by a line, with the exception of the top quartile which is subdivided in order to show the top decile of companies, shaded in blue. Markets with values exceeding the scale are indicated by the open-ended top box. The diamond indicates the weighted mean for each market.
Debt to Equity Ratios Quartile Distribution Chart (x)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Kore
a
South
Afric
a
Taiw
an
Braz
il
China
Mexic
o
Russ
ia
India
Malay
sia
Thail
and
Chile
Turke
y
Indon
esia
Polan
d
Hung
ary
Czec
h Re
publi
c
Peru
Philip
pines
Egyp
t
Colom
bia
Gree
ce
21
Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
Perspective: Demographics and Key Economic Statistics
Age Gross 2013 Growth Dependency Ratio* Enrollment Ratio US$ Per capita Total Per capita Total Per capita
million %YoY Young Old Secondary** billion (US$) (%) (%) (%) (%)
USA 318 1.0 na na 98 16,801 52,883 4.2 3.3 1.7 0.8
China 1361 0.5 0.3 0.1 81 9252 6801 18.8 18.2 10.2 9.6Brazil 200 0.8 0.4 0.1 106 2195 10983 14.8 13.7 3.7 2.7Russia 141 -0.3 0.2 0.2 89 2094 14804 17.1 17.4 4.0 4.3India 1267 1.4 0.5 0.1 63 1823 1440 11.8 10.1 7.7 6.2Mexico 118 1.0 0.5 0.1 91 1265 10700 6.1 4.5 2.6 1.1Korea 49 0.1 0.3 0.1 97 1207 24614 6.5 6.2 3.6 3.4Indonesia 248 1.2 0.4 0.1 81 842 3393 13.6 12.4 5.8 4.6Turkey 76 2.1 0.4 0.1 82 832 10875 10.6 9.1 4.8 3.4Poland 39 0.0 0.2 0.2 97 521 13509 9.2 9.1 4.0 3.9Taiwan 23 0.3 0.3 0.1 na 491 20987 4.7 4.3 3.9 3.5Colombia 47 1.2 0.5 0.1 97 391 8293 15.6 14.2 4.7 3.5Thailand 70 0.6 0.3 0.1 78 390 5543 10.6 9.8 3.8 3.0South Africa 52 1.2 0.5 0.1 94 355 6865 7.7 6.5 3.4 2.2Greece 11 -0.3 0.2 0.3 109 327 29013 5.4 5.1 -1.1 -1.4Malaysia 30 2.0 0.5 0.1 69 310 10337 11.6 9.6 5.0 3.1Egypt 84 2.0 0.5 0.1 72 298 3539 13.9 11.3 4.5 2.2Philippines 98 1.8 0.6 0.1 85 290 2951 13.8 11.8 5.3 3.5Chile 18 0.9 0.4 0.1 90 275 15663 14.0 12.9 4.8 3.7Peru 31 1.5 0.5 0.1 91 215 6949 13.4 11.6 6.6 4.9Czech Rep. 11 0.2 0.2 0.2 91 196 18652 7.9 7.6 2.5 2.2Hungary 10 -0.2 0.2 0.2 101 131 13229 4.6 4.8 0.8 1.0MSCI EM 3,984 26,835 5,949 12.8 13.2
Source: CEIC, Datastream, Bloomberg, US Census Bureau, World Bank, IMF, UNESCO, J.P. Morgan estimates Updated as of January 2014* Age dependency ratio defined as dependents to working-age population.** Gross Enrollment Ratio is defined as pupils enrolled in a secondary level, regardless of age expressed as a percentage of the population in the relevant official age group *** 10-year CAGR for period 2003-2013, in local currency. Data for Gross enrollment is for 2011 or as of latest data available
September 11, 2014
Population and Demographics Nominal GDP Real GDPPopulation 2013 10 year CAGR*** 10 year CAGR***
22
Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
Perspective: Global Emerging Capital Markets
MSCI EMF Index Markets Concentration J.P. Morgan EMBI Global
Total Market Cap Estimated Free Float CompaniesAverage Daily
Turnover
% of Emerging Market Trading
Volume
Weighting in MSCI EMF
Stocks constituting 75% of Country Market Cap
Stocks constituting 75% of Country Market Cap
Market Capitalisation Issues
US$ Bn (%) Number US $ Mn % (%) Number (%) US$ Bn NumberChina 1637 50 141 3370 19.3 19.4 37 26 26.5 29Korea 976 64 103 2670 15.3 14.9 31 30 na naTaiwan 689 73 101 1943 11.1 11.9 32 32 na naBrazil 872 54 73 2393 13.7 11.0 21 29 43.6 25South Africa 431 73 50 830 4.8 7.4 18 36 14.8 naIndia 951 30 68 1471 8.4 6.8 24 35 2.3 naMexico 379 59 30 458 2.6 5.3 11 37 76.4 34Russia 499 40 22 948 5.4 4.8 9 41 56.8 9Malaysia 367 44 43 311 1.8 3.8 18 42 7.1 5Indonesia 258 42 30 221 1.3 2.6 12 40 46.4 31Thailand 295 33 29 573 3.3 2.3 14 48 na naPoland 140 50 24 207 1.2 1.7 9 39 14.8 6Turkey 182 37 25 1128 6.5 1.6 12 48 na naChile 149 41 20 78 0.4 1.4 10 50 14.7 19Philippines 153 32 20 118 0.7 1.2 12 60 28.7 16Colombia 136 30 14 61 0.3 1.0 8 57 19.3 10Greece 63 46 10 123 0.7 0.7 6 60 na naQatar 127 20 10 100 0.6 0.6 6 60 na naUAE 119 20 9 284 1.6 0.6 6 67 na naPeru 42 43 3 114 0.7 0.4 2 67 12.5 8Egypt 17 60 4 16 0.1 0.2 2 50 1.5 2Czech Republic 29 32 3 20 0.1 0.2 3 0 na naHungary 13 63 3 26 0.1 0.2 2 100 1.4 1Total 8525 50 835 17462 100 100 366 192
Source: MSCI, J.P. Morgan. Updated as of 10 September 2014
11 September 2014
Korea 15%
Taiwan 12%
South Africa 7%
Brazil 11%
China 19%
Mexico 5%
India 7%
Russia 5% Rest of EM
19%
AC World Index Market Capitalisation MSCI Regional Market Capitalisation Top 8 versus Rest of Emerging Markets
EM Latin America
19%
EM Europe and Middle East
18% EM Asia 63%
North America 54%
Developed Europe
23%
Developed Asia 5%
Japan 7%
Emerging Markets
11%
23
Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
Perspective: MSCI Emerging Market Index Composition by Country and SectorNumber of Companies: 835 Total Market Capitalization (in billion US$): 8525 Estimated Free float : 50%
MSCI Emerging Markets Free Index
Cons
umer
Di
scre
tiona
ry
Cons
umer
Sta
ples
E ner
gy
Fina
ncial
s
Healt
h ca
re
Indu
stria
ls
Info
rmat
ion
Tech
nolo
gy
Mate
rials
T elec
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ervic
es
Utilit
ies
Tota
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China 1.0 0.9 2.8 6.9 0.4 1.2 2.5 0.5 2.3 0.8 19.4Korea 2.7 0.9 0.2 2.3 0.1 1.7 5.2 1.3 0.2 0.3 14.9Taiwan 0.5 0.3 0.1 2.1 0.0 0.3 6.9 1.2 0.5 11.9India 0.5 0.8 0.9 1.3 0.6 0.4 1.5 0.5 0.2 0.3 6.8Malaysia 0.4 0.4 0.2 1.3 0.1 0.5 0.2 0.4 0.4 3.8Indonesia 0.4 0.3 0.1 0.9 0.1 0.1 0.2 0.4 0.1 2.6Thailand 0.1 0.2 0.5 0.8 0.1 0.1 0.2 0.2 0.0 2.3Philippines 0.0 0.1 0.5 0.3 0.2 0.1 1.2Asia 5.6 3.9 4.6 16.1 1.3 4.7 16.1 4.1 4.4 2.0 62.8South Africa 1.8 0.4 0.8 2.1 0.5 0.2 0.7 1.0 7.4Russia 0.4 2.7 0.8 0.5 0.4 0.1 4.8Turkey 0.1 0.2 0.1 0.8 0.2 0.1 0.2 1.6Poland 0.1 0.0 0.2 0.9 0.2 0.1 0.2 1.7Egypt 0.2 0.1 0.2Czech Republic 0.1 0.0 0.1 0.2Hungary 0.0 0.1 0.1 0.2Greece 0.1 0.4 0.0 0.1 0.0 0.7UAE 0.4 0.1 0.6Qatar 0.4 0.1 0.1 0.0 0.6EMEA 2.1 1.0 3.8 6.1 0.5 0.7 1.4 2.0 0.5 18.0Brazil 0.6 1.7 1.8 3.8 0.1 0.5 0.4 1.4 0.3 0.6 11.0Mexico 0.5 1.3 0.9 0.1 0.6 0.9 1.0 5.3Chile 0.2 0.2 0.1 0.2 0.1 0.2 0.0 0.4 1.4Colombia 0.1 0.2 0.4 0.2 0.1 1.0Peru 0.2 0.2 0.4LatAm 1.3 3.2 2.1 5.6 0.1 1.2 0.4 2.8 1.4 1.0 19.2Total 9.0 8.1 10.5 27.8 2.0 6.5 16.4 8.4 7.7 3.5 100.0
Source: MSCI, J.P. Morgan. Updated as of 10 September 2014
11 September 2014
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Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]
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