JPMorgan: EM shares will benefit from the slowdown in the US economy

JPMorgan forecasts favorable prospects for emerging market (EM) stocks amid an expected slowdown in U.S. economic growth and lower interest rates in the second half of 2024. Analysts believe that these factors will have a positive impact on the comparative performance of EM shares due to differences in growth rates and interest rates.

Experts believe that adjusting expectations regarding rates and growth in the United States will lead to a higher valuation of EM shares in global investment strategies. However, they warn of risks, including economic downturns, market instability and the impact of the upcoming U.S. elections on international trade and investment risks.

The growth gap between EM countries and developed markets (DM) is expected to widen to 2.7% in 2024, compared with 2.5% in 2023. The Fed's rate cut may create opportunities for monetary policy easing in the EM.

Other factors boosting the attractiveness of EM stocks include limited investments in the sector, attractive prices, diversification strategies from U.S. stocks, and a weakening U.S. dollar.

The historically slowing but resilient U.S. economy is favorable for EM stocks. During periods of Fed rate cuts, EM stocks usually perform better: the average decline is 11% for EM, 15% for DM and 13% for the US.