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JPMorgan says stocks in South Korea and India could ‘surprise’ investors in 2020

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Via CNBC

J.P. Morgan has an optimistic outlook on Asian stocks, with South Korea and India positioned to perform particularly well going into 2020.

“We’re looking at an MSCI Asia ex-Japan index target of 750 at the end of first half. Year end, however, we’re looking at 700,” J.P. Morgan’s head of Asia ex-Japan equity research, James Sullivan, said Monday.

Still, J.P. Morgan said its 2020 year-end target for the index — which tracks large and mid-cap stocks across Asian markets, including China, Korea, and India — is roughly 8% above current levels.

The investment bank said it is “bullish on Asian equities,” explaining, “With aggressive policy easing this year, bottoming of the trade uncertainty-driven sentiment shock, and limited macro imbalances, growth looks set to bottom out in 4Q19 and improve in 2020.”

But Sullivan told CNBC that the environment could “get significantly more difficult” in the back half of the year.

“You start to turn to the election season in the U.S., there’s not going to be a lot of policy impulse as we go to that period of time,” he said referring to the 2020 elections in November.

But stocks in Asia could benefit as global tech demand recovers and companies resume investments. Korean and Indian equities, in particular, could benefit from these trends and “surprise” investors, Sullivan said.

Two trends in South Korean stocks

J.P. Morgan said investors are rotating out of bonds into equities, and out of growth stocks into value. And Sullivan said, Korea is “reasonably well-positioned” for both of these changes. That region has been under-performing and is one of the best value markets globally, he added.

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“It’s one of the markets that we have a key overweight going into year-end as well as early next year,” said Sullivan.

He also said Korean tech stocks could do well as demand heats up.

“Names like Samsung that we’ve seen strong performance (from) are on our top picks list, as we go through the first half of next year,” Sullivan said.

Besides Samsung, J.P. Morgan also has an “overweight” rating on South Korean internet company Kakao.

India to see boost from domestic policy

For India, domestic policies could help drive those stocks higher.

“We’re seeing an impulse of fiscal stimulus. We’re starting to see a bottoming out of earnings negative revisions that we’ve seen for the past year and a half now,” he explained.

In September, the Indian government cut taxes on companies and manufacturers, in an attempt to boost economic growth. Now, Indian companies only need to pay taxes of 22% on their profits, down from 30%. J.P. Morgan said in its report that the corporate tax cut could translate to a “fiscal impulse of about $20 (billion), or 0.7% of GDP).

The firm has an “overweight” rating on cement manufacturer Ultratech Cement and ICICI Bank. J.P. Morgan said Ultratech is positioned for “strong earnings growth,” while ICICI’s valuation is “attractive relative to its private banking peers.”


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