JPMorgan tilts towards emerging markets as earnings broaden and dollar softens

• Fourth-quarter earnings results have been encouraging with leading indicators pointing to further improvement, while inflation is expected to remain well-behaved despite higher commodity prices
• The US dollar is expected to continue its depreciation path, which typically favors equities, particularly in emerging markets where JPMorgan maintains a bullish stance
• Eurozone equities have reached new highs since early October, with JPMorgan reaffirming the overweight upgrade made in Q4 2025 as market leadership broadens to cyclical stocks and value plays

Summary

JPMorgan Upgrades Emerging Markets and Eurozone Equities

JPMorgan has reaffirmed its overweight position on emerging markets and eurozone equities, citing favorable macroeconomic conditions including strong earnings momentum, contained inflation, and a weakening US dollar. Mislav Matejka, head of global equity strategy, noted that the "trade-off between growth and policy remained favourable" despite ongoing geopolitical tensions.

Key Investment Drivers:

• Earnings growth: Q4 results show encouraging performance with "earnings delivery accelerating and broadening" across sectors
• US dollar weakness: Expected continued depreciation, historically positive for equities, particularly emerging markets
• Inflation outlook: Remains "well-behaved" despite higher commodity prices and increased capital spending
• Activity momentum: Economic resilience persists with leading indicators pointing to further improvement

Regional Performance:

Eurozone equities have reached new highs since early October, with JPMorgan maintaining its Q4 upgrade to overweight. The bank notes broadening market leadership, with cyclical stocks and value plays gaining traction.

Sector Views:

JPMorgan maintains a negative stance on software, media, and business services sectors, describing them as "a lose-lose proposition."

Market Implications:

The combination of dollar weakness, improving earnings breadth, and controlled inflation creates a supportive environment for risk assets. Investors may find opportunities in emerging markets and eurozone equities, while maintaining caution in certain growth-oriented technology and service sectors. The shift toward cyclical and value stocks suggests expectations for sustained economic activity rather than defensive positioning.