J.P. Morgan Turns Bullish on Emerging Markets: Trade Peace and Weak Dollar Drive Optimism

J.P. Morgan has upgraded its outlook on emerging market (EM) stocks, shifting its stance from “neutral” to “overweight.” The investment bank points to two key global developments—cooling trade tensions between the U.S. and China, and a weakening U.S. dollar—as reasons for this more positive view.

Trade Truce Sparks Renewed Confidence

One of the main catalysts behind this shift is the recent agreement between the U.S. and China to reduce tariffs for a 90-day period. The U.S. has lowered tariffs on Chinese imports from 145% to 30%, while China has responded by slashing duties on U.S. goods from 125% to 10%. These significant reductions suggest both sides are working towards a more stable trade relationship, which in turn eases pressure on global markets—particularly those in the emerging world.

According to J.P. Morgan analysts, this easing of tensions removes a major hurdle for EM equities and provides a more stable backdrop for growth in these economies.

Weak Dollar Offers Additional Tailwind

Adding to the positive momentum is the weakening of the U.S. dollar. The dollar index has dropped 7.5% so far this year, making EM assets more attractive to international investors. A softer dollar typically supports emerging markets, as it reduces the burden of dollar-denominated debt and makes exports from these countries more competitive.

J.P. Morgan believes the dollar will continue to weaken through the second half of the year, providing a further boost to EM equities.

Valuations Look Attractive

From a valuation perspective, EM stocks are trading at a notable discount compared to their developed market counterparts. The average price-to-earnings (P/E) ratio for EM equities is currently 12.4 times their expected earnings over the next 12 months. In contrast, developed markets are trading at a much higher P/E ratio of 19.1.

This valuation gap, combined with improving macro conditions, has made EM stocks more appealing to investors seeking growth opportunities at reasonable prices.

Bright Spots: India, China Tech, Brazil, and More

Within the emerging market space, J.P. Morgan remains particularly optimistic about countries like India, Brazil, the Philippines, Chile, the UAE, Greece, and Poland. The firm is especially bullish on China’s technology sector, which it sees as a strong opportunity given the improved trade outlook.

The MSCI Emerging Markets Index has already gained 9% year-to-date, reflecting growing investor interest as concerns over U.S. political uncertainty and aggressive economic policies under President Donald Trump weigh on confidence in U.S. assets.

EM Stocks Poised for a Comeback

Since 2021, emerging market stocks have lagged behind developed markets by a wide margin—roughly 40%, according to J.P. Morgan. However, with the twin support of improved trade dynamics and a weakening dollar, EM equities are now positioned for a strong comeback.

In summary, the combination of attractive valuations, easing trade tensions, and favorable currency trends has turned emerging markets into a promising destination for global investors once again.