Emerging Asia and Pacific ex-Japan are up 9% and 2.4%,
respectively,
year to
date. Cyclicals have outperformed defensive companies – the J.P.
Morgan
Strategy Team defensive stock list has underperformed the
regional
index by 8% YTD. The major EM Asia markets of China,
India, Korea, and Taiwan have outperformed. The question now is
do
we continue to maintain our positive view
on equities and preference for
early cyclicals? We do, and we believe
investors should.
In this report we review
valuations and previous post crash rallies. Our
conclusions
are:
o
Today’s EPS is below trend EPS;
o
Markets are cheap;
o
Positive returns are the norm post a sharp recovery;
o
Valuations in EM trend rather than mean revert;
o
Sell in May works 50:50.
The key risks to our view are China’s
growth recovery fades and/or the
stabilization
in US
retail sales proves temporary.
