J.P. Morgan said equity markets in Argentina and Turkey could post returns of more than 20% this year, driven by policy reforms aimed at reducing inflation levels.
"Lifting of capital controls is a potential upside driver for Argentina," said J.P. Morgan analysts in a note on Tuesday, while adding that Turkey's ongoing path to lower inflation and lower interest rates could bolster its equities.
Argentina's benchmark Merval stock index (.MERV), opens new tab is trading at nine times its 12-month forward price-to-earnings (PE) ratio, while Turkey's BIST 100 index (.XU100), opens new tab trades at seven times, as per JPM estimates.
Both indexes are trading at a discount to the broader MSCI emerging markets index (.dMIEF00000PUS), opens new tab whose PE ratio stands at 12.
MILEI'S REFORMS PAVING THE WAY
Investors are doubling down on Argentina's stocks and bonds even as they hit records in 2024, as Javier Milei's government seeks to reduce inflation and eliminate capital controls that have been detrimental to business and investment.
JPM expects the lifting of capital controls and the upcoming midterm elections in October to further support the region's equities.
In the last 12 months, Argentina's benchmark has risen 77% in dollar-denominated terms, the second-best global performance of 92 main equity markets, as per JPM's estimates.
The last 12 months performance of the benchmark stock indexes of Argentina and Turkey
TURNING TIDE IN TURKEY
Having upgraded Turkish equities to "overweight" from "neutral" last month, JPM says falling inflation and the rate-cutting cycle could further help the broader stock market. In local currency terms, the BIST 100 index has risen about 8% in the last twelve months.
After interest rate cuts of 250 basis points each in December and January, the Turkish central bank's policy rate now stands at 45% and economists expect rates to be lowered to 30% by the end of the year, which is in line with JPM's forecasts.
JPM favors Argentina's financials and energy sectors, while for Turkey, the brokerage's top stock pick is food retailer BIM Birlesik Magazalar AS (BIMAS.IS), opens new tab, but also favors Akbank (AKBNK.IS), opens new tab, Turkish Airlines (THYAO.IS), opens new tab and food retailer Migros
