J.P. Morgan Asset Management (JPMAM) is “warming up” to going back to equities after holding an underweight position.
Kerry Craig, executive director and global market strategist, said he believed the firm was now feeling it could reduce its underweight to the asset class.
“We don’t think in specific percentages but we were very underweight and now we think we will be less so.
“We’d be using that extra cash people have in terms of higher interest rates and from being defensive to increase equity exposure and we’d also offset that by adding more duration at the shorter end of the yield curve.
“We are just remaining a bit cautious because the market has run really hard in the first part of the year and really delivered the returns we would have expected to see over the course of the full year within that one month. So we still have concerns around what that can mean in terms of a near-term pullback.”
The ASX 200 had returned 8% since the start of the year to 2 February in January compared to losses of 1.1% during the whole of 2022.
Craig added: “I would expect over time if we did get a pullback in the equity market or if we did get a very clear signal over the next couple of months that inflation is coming down or the Fed is pretty much done then we will be much more optimistic on the outlook for equities.”
Regarding geographic exposure, he said the firm favoured global equities as JPMAM had improved its view on emerging markets which were cheaper than developed ones.
“Within equities, we would be thinking globally given we have a better view on emerging markets as the valuations there are relatively cheaper than developed ones, central banks are likely to start cutting rates much sooner in the emerging world and we’ve got falling inflation in those markets as well. And also you have the China market recovering as well.
“So there are opportunities around the world given the three-speed economy and I think that’s a benefit for a long time.
“There wasn’t many before as everything was expensive and everything had done well. Now we have much more divergence around the world in terms of what can perform so we’d be very much looking for a global exposure.”
Meanwhile, executive director of US equity, Christian Mariani said the US was showing a “better entry point” than it had in the last two years
“We think from a valuation perspective, it is definitely a much better entry point right now compared to the last two years. But at the same time, it’s not a screaming, cheap number. And that’s why we want to be mindful and want to take a cautious approach there.
“We wouldn’t be surprised if valuations fall a little bit more from here in the US especially if earnings deteriorate faster so that’s something to keep in mind.”
