Why emerging markets could lead global equities in 2H By Investing.com

JPMorgan sees emerging market equities set for a strong second-half rally, citing record-cheap relative valuations versus developed markets, a 12x forward P/E, and improving macro conditions. The bank expects easing hawkish central bank pricing, a softer U.S. dollar, and signs of recovery in China to support EM assets, while also highlighting cheaper AI-related plays and memory chip fundamentals. It views conflict-driven dips as buying opportunities and notes that institutional positioning remains low as inflows begin to accelerate.

Analysis

This is less a broad “EM beta” call than a catalyst-driven factor rotation: the market is likely to reward the cheapest, most levered proxies to softer USD, easier policy, and China stabilization before it fully rerates the index complex. The second-order effect is that EM semiconductor, hardware, and AI-adjacent supply chains should see multiple expansion even if end-demand remains uneven, because positioning is still light and the market is paying for optionality rather than near-term earnings certainty.

The most interesting edge is that the setup creates a relative-value opportunity versus the crowded U.S. AI trade. If global rates drift lower and the dollar weakens, the financing discount and translation headwind that have suppressed EM tech can compress quickly, making low-multiple names with operating leverage outperform on modest revisions. That argues for owning the “picks and shovels” inside EM rather than broad EM index exposure, especially where memory and component pricing can turn before consensus growth catches up.

Risks are timing and macro whiplash: the trade works over months, not days, and can be derailed by a renewed dollar squeeze, a fresh geopolitics shock, or another hawkish repricing from central banks. The contrarian point is that the market may already be underinvested, but not necessarily underexposed through derivatives and factor baskets; if EM rallies, the first leg can be fast but shallow unless China data actually inflects. That makes the best risk/reward in pairs and call spreads, not outright beta.

In the U.S. financials and consumer-service ecosystem, the implication is competitive pressure on globally exposed, payments-linked, and internet-adjacent incumbents as capital rotates toward cheaper growth elsewhere. For the names mentioned, the Delta signal is more about energy-cost relief and demand normalization than a standalone airline thesis, while the exits from large-cap payment and healthcare franchises suggest the manager is trimming crowded defensives to fund higher-conviction cyclicality and AI exposure.

Key Decisions for Investors

• Go long EWEM/EMXC vs short SPY for a 3-6 month relative-value basket; target 6-10% outperformance if the dollar rolls over, with a stop if DXY reclaims its recent highs.
• Buy a basket of EM AI/semiconductor proxies on pullbacks and pair it against U.S. megacap AI exposure; use 3-6 month horizon and expect 15-20% relative upside if rate cuts and FX tailwinds persist.
• Initiate long GOOGL on a 2-4 month view versus short AMZN or the broader discretionary/consumer-internet complex; the market is likely to reward lower-regulatory-risk AI monetization over heavier-capex, lower-margin reacceleration stories.
• Use DAL as a tactical long only into periods of oil softness and improving global travel sentiment; risk/reward is attractive for a 10-15% move, but cut quickly if macro data weakens or fuel prices re-accelerate.
• Express the macro thesis with call spreads on EWZ or a broader EM ETF rather than cash equity if you want convexity to a weaker USD and China stabilization, because the upside can arrive quickly once flows turn.