Cyclical challenge to the bears :: JPMorgan,

 We are less bearish on EM. The fundamentals are still challenging, but
better cyclical data (PMIs) combined with universal bearish positioning
are likely to drive markets for the balance of 2013. Stabilization in
current account deficit currencies is a catalyst to cover shorts. Our
advice is to buy tech, exporters and import substituters in countries with
weak FX, financials in CAD countries where FX is stabilizing, Thailand,
and the Philippines. In China, we recommend buying beneficiaries of
policy priorities and long-term growth themes.
 Hong Kong and Singapore are the most vulnerable to the Fed’s policy
normalization. We downgrade HK to underweight; avoid utilities, banks
and property in favor of gaming and exporters. We remain neutral on
Singapore due to record-high shorts.
 August was a value month globally except for Japan. Price Momentum
underperformed as it is the natural counter trade to Value given its
defensive positioning . Our derivatives strategists believe
that 2M put options on ASX 200, KOSPI 200 and H-shares are attractive
protection strategies to hedge the tapering risks .
 Technical strategy suggests the end of underperformance of EM vs
World. North Asia is positioned to outperform while ASEAN and India
should continue to underperform. The underperformance of tech,
materials and energy is close to bottoming out, consumer discretionary
outperformance continues to build led by autos while financials and
defensives should underperform .
 Key asset allocation calls:
OW: Japan, Taiwan, Thailand, Malaysia and the Philippines
UW: Australia, Hong Kong and Indonesia
 The key risks to markets include Syria generating an oil price shock
and faster normalization of US interest rates (possible catalyst is nominee
for new Fed chairman). The key risks to our strategy include a
correction in the rupiah and the sustainability of China growth.

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