Emerging Stocks to Fall on Commodities, JPMorgan Says (Update1)

By Shiyin Chen
July 5 (Bloomberg) -- A decline in commodity prices is likely to drive emerging-market stocks lower in the third quarter, offering investors an "extraordinary buying opportunity," JPMorgan Chase & Co. said.
The "markers" of a correction in emerging-market stocks will be "large redemptions" in commodity funds and a slump in crude oil prices below the May low of $65 a barrel, analysts led by Adrian Mowat said in a July 4 report. This may occur this quarter, the analysts predicted.
The MSCI Emerging Markets Index has dropped 7.5 percent this year amid concern Europe’s sovereign-debt crisis and China’s efforts to curb property speculation will hurt a global economic recovery. Measures tracking energy and materials stocks make up two of the index’s three worst-performing industry groups, falling 14 percent and 10 percent, respectively.
"For now markets are going lower driven by a sharp correction in commodities," Mowat, JPMorgan’s chief Asian and emerging-markets strategist, wrote in the report. "The third quarter of 2010 should provide an exceptional buying opportunity."
The Baltic Dry Index, a measure of shipping costs for bulk commodities, has dropped 46 percent in 26 straight sessions, the longest losing streak since August 2005. Crude oil prices have declined 8.9 percent since the start of the year, while copper has tumbled 12 percent this year.
The MSCI Emerging Markets gauge added 0.1 percent as of
10:12 a.m. in Singapore.

‘Wait’ to Buy

JPMorgan said investors should "wait" before adding to technology and transportation shares as well as stocks in India, South Korea, Taiwan and the Philippines. Still, investors are "too pessimistic" on global growth, according to the report.
Stocks fell last week after U.S. government data showed manufacturing expanded in June at the slowest pace this year and private employers added fewer workers to payrolls than forecast last month. China’s manufacturing also expanded at a slower pace for a second month in June, adding to signs that growth in the world’s third-largest economy is moderating.
"Global growth is forecast to be lower than the average post-recession period, but it is growth," Mowat wrote. "In our view, we are moving into a period of outperformance for growth stocks. This is good for emerging-market equities."

Scalpuman wrote:

By Shiyin Chen
July 5 (Bloomberg) -- A decline in commodity prices is likely to drive emerging-market stocks lower in the third quarter, offering investors an "extraordinary buying opportunity," JPMorgan Chase & Co. said.
The "markers" of a correction in emerging-market stocks will be "large redemptions" in commodity funds and a slump in crude oil prices below the May low of $65 a barrel, analysts led by Adrian Mowat said in a July 4 report. This may occur this quarter, the analysts predicted.
The MSCI Emerging Markets Index has dropped 7.5 percent this year amid concern Europe’s sovereign-debt crisis and China’s efforts to curb property speculation will hurt a global economic recovery. Measures tracking energy and materials stocks make up two of the index’s three worst-performing industry groups, falling 14 percent and 10 percent, respectively.
"For now markets are going lower driven by a sharp correction in commodities," Mowat, JPMorgan’s chief Asian and emerging-markets strategist, wrote in the report. "The third quarter of 2010 should provide an exceptional buying opportunity."
The Baltic Dry Index, a measure of shipping costs for bulk commodities, has dropped 46 percent in 26 straight sessions, the longest losing streak since August 2005. Crude oil prices have declined 8.9 percent since the start of the year, while copper has tumbled 12 percent this year.
The MSCI Emerging Markets gauge added 0.1 percent as of
10:12 a.m. in Singapore.

‘Wait’ to Buy

JPMorgan said investors should "wait" before adding to technology and transportation shares as well as stocks in India, South Korea, Taiwan and the Philippines. Still, investors are "too pessimistic" on global growth, according to the report.
Stocks fell last week after U.S. government data showed manufacturing expanded in June at the slowest pace this year and private employers added fewer workers to payrolls than forecast last month. China’s manufacturing also expanded at a slower pace for a second month in June, adding to signs that growth in the world’s third-largest economy is moderating.
"Global growth is forecast to be lower than the average post-recession period, but it is growth," Mowat wrote. "In our view, we are moving into a period of outperformance for growth stocks. This is good for emerging-market equities."

If anyone is interested, these are 2 emerging market ETFs I like:

1. iShares MSCI Emerging Markets Index Fund/United States (EEM:US)
2. Vanguard Emerging Markets ETF (VWO:US)