All into Account

Equity Strategy: Regional allocation - assessing the relative attractiveness of Japan vs Eurozone

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
Out of larger DM exposures, we started the year with constructive calls on both Eurozone and on Japan. Within this, we have last month cut Eurozone,  to outright UW. The question is why stay OW Japan then, given that Japan is typically seen as having a similar type of exposure as Eurozone is, a play on global manufacturing cycle with Cyclical Value sector tilts. We believe that Japan will be a better relative value trade than Eurozone in 2H, even against the backdrop of potential weakening in global activity momentum and likely falling bond yields. Apart from delivering a strong run, of 30%+ in USD terms vs the US since September, we have cut Eurozone due to worsening Growth-Policy tradeoff in the region. ECB is likely to stay hawkish given continued pickup in wage growth, but on the other side the best of the recovery in activity seen at the turn of the year is likely behind us. In addition, we believe China will keep stalling in 2H, with hopes of any material stimulus likely ending up unfulfilled. While Japan is a China and global activity play to a large extent, as well, we stay constructive Japan, reiterating the upgrade to OW made in December. Performance-wise, Japan was behind Eurozone until recently, but it is starting to break out, in USD terms as well, and not just in local FX. The reasons that Japan could act differently this time around are: first, a certain disconnect to the global cycle, on the back of the most delayed reopening within DMs, and the YCC control, driving bond yields divergence, and therefore the divergence in borrowing costs. Second, inflation for Japan could be seen as a tailwind, with real wages expected to finally move up, rising asset values and improving pricing power. In a sense, Japan could be a good hedge on inflation risk, in the event inflation turns out to be more problematic than consensus assumes. Third, Japanese equities remain extremely cheap, with the highest proportion of net cash companies, and there is at long last a catalyst for rerating – in the form of TSE initiative. Japanese buybacks are rising.
 
This podcast was recorded on 11 June 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at http://www.jpmm.com/research/content/GPS-4435627-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.
 

All into Account: ‘Is Market Breadth improving or not?’ with Mislav Matejka, Head of Global Equities Strategy

Speakers:  
Thomas Salopek, Head of Global Cross Asset Strategy Mislav Matejka, Head of Global Equities Strategy  
 
This podcast was recorded on June 8, 2023.This communication is provided for information purposes only. Institutional clients can view the related reports at https://www.jpmm.com/research/content/GPS-4430667-0, https://www.jpmm.com/research/content/GPS-4430186-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.   

Equity Strategy: June Chartbook

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
The real “pain trade” in the market is clearly the breakout driven by Cyclical Value stocks, exactly like what took place on Friday. As a result, MXWO finally closed above the Q1 high. This could have legs if real yields are up for the right reasons, if China stimulates big, or if manufacturing PMIs inflect higher. The narrative behind the Friday move fits some of the above, but we do not see it getting a confirmation. We think yields will move back down, pricing power is waning, labour market signals are more mixed beneath the surface, with WARNs moving up, any China stimulus is unlikely to be meaningful, PMIs could indeed converge, but with services coming down towards manufacturing in 2H, as M1 suggests, rather than the other way around. Up to Friday move, the internal market leadership was extremely narrow. All S&P500 sectors, apart from Tech complex, were flat/outright down on the year. We are more positive on Tech this year than last, but the Tech rally has been quite exceptional, it is looking overbought, and on the other side we do not expect Cyclicals to bounce sustainably. We see Cyclicals stalling again, as typically happens around the last Fed hike in the cycle. Stay OW Growth vs Value, keep fading Cyclical Value, and reiterate last month’s closure of Eurozone vs US trade.
This podcast was recorded on 05 June 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4430186-0  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 

All into Account: ‘Banks update’, with Vivek Juneja, Head of Large Cap Bank Research

Speakers: 
Thomas Salopek, Head of Global Cross Asset Strategy
Vivek Juneja, Head of Large Cap Bank Research
 
This podcast was recorded on May 30, 2023.This communication is provided for information purposes only. Institutional clients can view the related reports at www.jpmm.com/resehttps://www.jpmm.com/research/content/GPS-4353731-0, for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

Equity Strategy: China continues to fade - reiterate the closing of Eurozone vs US trade

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
After a sharp ~60% rally during Nov-Jan, on the back of the reopening drive, MSCI China has lost 20% since. The latest China economic numbers, for April, have underwhelmed, including IP, retail sales and FAI. This is joining peaking PMIs, 20% lower iron ore price from highs, as well as a big slowdown in China CESI. The concern is weak confidence, which has restricted the broadening of recovery. The consumer might not get stronger, FAI and property are both structurally challenged, the external backdrop might not help and geopolitics could stay tough. Furthermore, our economic team does not anticipate any meaningful new stimulus measures for the rest of the year. Internal consumer mobility metrics have fully recovered, such as subway ridership and domestic flights. Unlike in the US and Europe, there might not be much pent up demand, as Chinese consumers didn’t enjoy significant cash transfers during Covid lockdowns, and there are reports of wage cuts in certain industries. The property market has stabilized, post the sharp fall in activity, but new land sales are lower 30% ytd. The house prices are at risk of weakening. Tier 1 house prices in China are not dissimilar to what was observed in Japan in 1990, in terms of affordability. FAI and infrastructure spend could continue to lag, absent a fresh policy stimulus. FAI shares of GDP remain very high, compared to other countries. We believe that China exposure baskets might keep disappointing and more broadly we remain UW Value vs Growth style this year. China reopening was one of the big supports for Europe trade, where Eurozone beat the US by 30%+ since last September to most recently, in USD terms. The likely China rollover is one of the reasons why we decided to cut this trade earlier in the month. With this closure, we have the OWs on the following regions globally: Japan, UK and Switzerland.
This podcast was recorded on 29 May 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4425285-0  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.
 

Equity Strategy: What was a supportive phase of Growth-Policy tradeoff ytd is likely to look quite different in 2H

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
The general perception is that investor bearishness is ubiquitous, but at the same time a potential downturn is not seen as happening anytime soon by the vast majority, and when it comes, it is expected to be rather mild, without much pain to profits, topline or credit. Most importantly, markets need to negotiate what is likely to be an increasingly challenging Growth-Policy tradeoff in 2H, a setup that could look very different to a near “Goldilocks" backdrop that investors got used to in the past 3 quarters. On the Growth side, after a meaningful improvement at the turn of the year, CESIs are down in US, Eurozone and China. After two years of us arguing profit margins will keep showing strength, margins appear to be finally peaking. Consumer and labour markets are resilient, so far, but that can change quickly. Historically, the time that passes from the best labour market prints in the cycle to the next downturn is surprisingly short. Certain labour indicators are softening, and consumer confidence is weakening again. On the Policy/Inflation side, the market is projecting a sharp Fed pivot in 2H, with nearly 70bp of rate cuts priced in by January. If these do not materialize, USD might bounce, strengthening USD is usually a risk-off indicator for markets. Of course, the Fed could stay hawkish for longer for the more problematic reasons, as well – i.e. sticky inflation. Inflation is seen to be on a down path by most, a view we agree with, but the wildcard is the inflation expectations and the wage growth. Notably, inflation expectations in the US consumer confidence survey have moved to 12 year highs. In a sense, the markets in 2H could be caught between a rock and a hard place. We reiterate UW Value style for this year, and low beta positioning, with overall market levels that could provide a better entry point in 2H.
This podcast was recorded on 22 May 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at http://www.jpmm.com/research/content/GPS-4419519-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

Part 2: Key themes for the S and G and investment screens

In this All into Account podcast, which is part 2 of our two part series, we discuss the key highlights from our latest J.P. Morgan Perspectives: ESG and Supply Chain Risks: Putting the Spotlight on the “S” and “G” in ESG report. We also discuss key themes emerging in the Social and Governance pillars as well as J.P. Morgan’s proprietary social and governance screens and Human Capital Factor metric developed by our quant research team.
 
Speakers:
Gloria Kim, Head of the Global Index Research & Co-Head of ESG & Sustainability Research
Jean-Xavier Hecker, Head of EMEA ESG & Sustainability Research
Hannah L Lee, Head of Asia Pacific ESG Equity Research
Khuram Chaudhry, Global Quantitative Strategy
 
This podcast was recorded on May 10, 2023. This communication is provided for information purposes only. Institutional clients, please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 
 
 

Part 1: ESG and Supply Chain Risks: Putting the Spotlight on the “S” and “G” in ESG

In this latest All into Account podcast, which is part 1 of our two part series, we discuss the key highlights from our latest J.P. Morgan Perspectives: ESG and Supply Chain Risks: Putting the Spotlight on the “S” and “G” in ESG report and examine the Social and Governance risks that increasingly impact supply chain resiliency. The current focus on securing resilient supply chains has spurred deeper evaluation of the “S” (Social) pillar, spotlighting human capital management issues related not only to human and labor rights, but also to diversity, equity and inclusion considerations.
 
Speakers:
Joyce Chang, Chair of Global Research
Sophie Warrick, Head of EMEA Equity Research & Co-Head of ESG & Sustainability Research
Pedro Martins Junior, Head of Emerging Markets Equity Strategy
Stella Y. Xu, Strategic Research
 
This podcast was recorded on May 10, 2023. This communication is provided for information purposes only. Institutional clients, please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

Equity Strategy: Closing the preference for Eurozone over the US

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
In a regional allocation, we had a preference for International equities, and within that for Europe over the US, in the past year. We believe that the time has come to close the trade of OW Eurozone vs the US. Europe was the least liked region last summer, when the consensus of economists was that it has already entered a recession, but it has transitioned to a consensus long, a preferred play on China rebound, and has enjoyed a big move up in activity, from 47 Euro Composite PMI in November to 54 currently. Given this, from the low last September to last week, Eurozone equities have advanced as much as 30% vs the US. One should be locking in these gains, especially if our current sector and style views of more Defensive leadership keep gaining traction – Eurozone has always been a global Cyclical Value play. The best of the improvement in Eurozone activity is likely behind us, CESI just turned negative. In contrast, ECB is likely to stay hawkish, due to persistent inflation, implying that the Growth–Policy tradeoff is likely to deteriorate. The region still screens cheap, but it historically acted as a high-beta play on the way down, when discounting past US recessions. China reopening clearly helped European performance, both directly and indirectly, as many investors preferred to position through non-China stocks. However, the best of the momentum is likely behind us, with peaking in China CESI and PMIs, and with many mobility metrics having normalized. Unless China delivers a meaningful fiscal stimulus in the near term, it is unlikely that it will be a positive catalyst for European equities from here. With this change, we now have the following pecking order regionally: we are OW UK, Japan and smaller parts of DM, such as Switzerland, we stay unexcited by EM, Neutral vs DM, and we keep UW in the US, now joined with an UW in Eurozone.
This podcast was recorded on 08 May 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at http://www.jpmm.com/research/content/GPS-4406422-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

All into Account: ‘All things Japan: YCC, JGBs, Yen and Equities’, with Tohru Sasaki, Head of Japan Macro Research

Tohru joins us to discuss the end of YCC, and where we see fair value for the JGB yield. Rising JGB yields will likely not translate into Yen strength this time around, given the wide short-term yield gap and the trade deficit.  But a weak yen should still be a positive for stocks.
 
Speakers:
Thomas Salopek, Head of Global Cross Asset Strategy
Tohru Sasaki, Head of Japan Macro Research
 
This podcast was recorded on 5 May 2023.
This communication is provided for information purposes only. Institutional clients can view the related report https://www.jpmm.com/research/content/GPS-4391169-0 and https://www.jpmm.com/research/content/GPS-4399337-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.