The Fastest Fall - 3rd Encore Emerging Markets Equity Strategy - JP Morgan

• MSCI Emerging Market is now down 7% since its recent high on 1165. A typical EM correction is 15-20%; assuming this then the buy zone is below 990. In this report we revisit the historical corrections in emerging equities and put the current correction into perspective.

• The median post-correction 12-month forward return is 35%. This assumes that you can time the bottom. As this is unrealistic, we look at the 12-month forward return after a 15% decline over four weeks. The median forward return from this point is 19% (see Table 3). Note that forward P/Es of MSCI EM is inline with the median post-correction.

• Drivers of current correction are inflation fears, resulting fear of tighter policy and a rotation into developed markets. This type of correction punishes companies with good fundamentals as investors can only sell what they own. We continue to believe in the fundamentals of emerging economies.

• Corrections of this magnitude have historically been buying opportunities except 1997 Asian crisis and credit crisis in 2008. Our key overweight markets are Taiwan, ASEAN ex Indonesia, Russia and Turkey.