Nov. 4 (Bloomberg) -- Emerging-market equities, heading for their best year in a decade, will lead a first-half advance in global stocks in 2010 as export and domestic demand pick up, according to Prudential International Investments Advisers LLC.

John Praveen, chief investment strategist at Prudential, said he is “underweight” U.S. stocks for the first six months of 2010 and is advising investors to switch from emerging markets to American equities in the second half. Benchmark indexes in China and India, up more than 50 percent in 2009, will rise between 20 percent and 25 percent next year, he said.

“Emerging markets have not reached a stage where they are very, very expensive or they are in a bubble,” Praveen said in an interview from Seoul yesterday. Prudential International Investments is a unit of Prudential Financial Inc., which manages about $580 billion of assets.

The MSCI Emerging Market Index has surged 59 percent this year, poised for the best gain since a 64 percent rally in 1999. It trades at 21 times reported earnings, lower than the 29.3 times multiple for the MSCI World Index, which has increased 20 percent in 2009. The 10 best-performing stock indexes this year are from developing countries, led by gauges in Peru, Argentina and Russia, according to data compiled by Bloomberg.

China’s Shanghai Composite Index is ranked eighth after climbing 71 percent. Equities rallied as Premier Wen Jiabao’s $586 billion stimulus package and record lending helped third- quarter gross domestic product expand 8.9 percent from the same period in 2008, the fastest pace in a year.

The Shanghai index has pared a gain of as much as 91 percent amid concern that China will restrain stimulus measures too early. A decline in new loans in July sent the gauge down 22 percent in August.

Gradual Withdrawal

“China’s rally until now has been driven by liquidity, and the next phase of rally is likely to be driven by earnings recovery and solid GDP growth,” Praveen said. “Even if the stimulus is going to be withdrawn, it’s going to be withdrawn in a very gradual way.”

Aberdeen Asset Management Plc said yesterday the U.S. economy may “relapse” next year on concern that the government’s rescue efforts may not be sustainable.

“What we’re saying right now is basically to be cautious because of the possibility of this relapse next year, a W-shaped recovery,” Peter Elston, a strategist at Aberdeen, which had about $234 billon under management as of Sept. 30, said in a Bloomberg Television interview in Singapore.

Global equities will have “modest” gains in 2010 compared with this year, Prudential’s Praveen said.

He favors India because of the its “strong” domestic demand. Praveen declined to name individual stocks, citing his company’s policy. The Bombay Stock Exchange Sensitive Index has rallied 60 percent this year.

Praveen also likes commodity exporters such as Brazil as there are still a “lot of” global stimulus measures in the pipeline, including spending on infrastructure projects, which will help spur demand for steel, copper and aluminum, he said.

To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net

Last Updated: November 3, 2009 18:31 EST