All into Account

Equity Strategy: How much more can Eurozone lag? Reiterate that commodity equities look better; Add to Real Estate

Speaker - Mislav Matejka, CFA, Head of Global Equity Strategy
After the strong 30%+ rally vs the US that started last September, Eurozone equities have lagged notably since May, by 14%. SX5E has not managed to make gains in absolute terms since February. On the positive side, given the poor relative run, Eurozone equities are looking quite cheap at present, and one could argue that the relative growth disappointments are likely closing in on their worst point, vs the US. Having said that, the absolute Growth-Policy tradeoff is still challenging for Eurozone, in our view. Activity has stalled, as we were fearing, and M1 lead indicator points to continued softness. On the other side, while ECB has indicated a pause, it might not be done, as inflation could stay sticky – core CPI still has a 5% handle. Eurozone EPS revisions held up well so far this year, but look set to turn sharply negative, which will take away some of the perceived valuation support. Finally, Euro equities are trading better than the macro outturns would suggest. We reiterate our downgrade to UW, made in May, staying cautious on the region, expecting it to have another leg of underperformance in the global context. This could come if services momentum slows more broadly, and if bond yields move down. Eurozone historically acted as a high beta on the way down vs other equity indices, especially the US. Within Europe, we have tactically a more positive call on commodity equities, Energy (OW), which tended to do well against the backdrop of the rollover in PMIs, as well as Mining, on which we were bearish earlier in the year, but would not be short any more given the big 30% underperformance since January. We are relatively more cautious on consumer and corporate plays, that have done well in 1H, such as Autos, Semis, Capital Goods and Luxury. We also stay cautious on Chemicals. We have been UW Real Estate for the last two years, but advise closing the short now. We are not excited about Eurozone Banks (N), and globally prefer Japanese Banks – we continue the pair trade of long Japanese vs Eurozone Banks – started in April, on the expectation of further move up in Japanese bond yields vs Eurozone bond yields.
 
This podcast was recorded on 18 September 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4514331-0  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

All into Account: ‘Best opportunities in SMidCap stocks’, with Eduardo Lecubarri, Head of SMidCap Strategy

Speakers:
Thomas Salopek, Head of Global Cross Asset Strategy
Eduardo Lecubarri, Head of SMidCap Strategy
 
We maintain a cautious stance with a deteriorating macro backdrop and margin pressure which challenge the rich consensus sell-side earnings estimates. Despite our bearish view, we can find SMidCap opportunities at the stock level, focusing on names which are under-valued, where pricing power and margins are more supportive.
 
This podcast was recorded on Sep. 13, 2023.This communication is provided for information purposes only. Institutional clients can view the related reports at  https://www.jpmm.com/research/content/GPS-4497659-0, https://www.jpmm.com/research/content/GPS-4508173-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

Equity Strategy - Should one turn more positive on China? How attractive is broader EM?

Speaker - Mislav Matejka, CFA, Head of Global Equity Strategy
China is the worst performing equity market ytd, out of larger EMs and DMs, down 6%, and 20% below January highs. At the same time, fresh stimulus newsflow is coming through and the Chinese-related indices could be due a bounce. Should one position for this? The new support measures might stabilize Chinese growth momentum, close to the 5% target, but could end up insufficient in helping drive any sustained upside. We note CNY is making fresh multi-year lows. Structural concerns remain significant, with the lack of confidence by the private sector, and the adjustment in real estate continuing. Demographics is a constraint; fiscal and monetary space to act is limited; and the risk of Japanese-style stagnation remains real, with a housing double dip the base case. We have been cautious on China over the past months, advising to fade stimulus-driven bounces. Our worry is that any rally might end up short-lived, and not lead to sustained medium-term gains, unless the real estate overhang reduces. With respect to the broader EM, EMs are this year underperforming DM by 11%, and even if one is to look at DM ex US, or EM ex China, EMs are struggling this year. While the Fed is likely to stop tightening, it could stay higher for longer. The EM FX index is making fresh lows. If USD keeps getting stronger, as we suspect, this was never a good backdrop for EM. In our global equity regional allocation, we stay cautious on EM vs DM. The EM basket has underperformed European indices ytd, and we stay away from it. Within it, while we are cautious on Miners, we note that they have already performed quite poorly, and, together with Energy which we are OW, can offer better relative value. In contrast, Luxury, Capital Goods, Autos and Semis did well in 1H, but are starting to stall, and there could be further weakness ahead. Defensives to work.
 
This podcast was recorded on 10 September 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4509399-0  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

All Into Account: ’China multi-asset update’ with Tingting Ge, Tiffany Wang, and Soo Chong Lim

Broadening policy easing in China will do just enough to ensure growth comes in at the ~5% growth target, although in the absence of bazooka-like stimulus, restoring private sector confidence will be critical. Tingting, Tiffany and Soo Chong join us to give an update on China economics, rates, FX, and credit.
 
Speakers:
Thomas Salopek, Global Cross Asset Strategy
Tingting Ge, China Economist
Tiffany Wang, Rates and FX Strategist
Soo Chong Lim, Asia Credit Strategist
 
This podcast was recorded on 08 Sept 2023.
This communication is provided for information purposes only. Institutional clients can view the related report https://www.jpmm.com/research/content/GPS-4498587-0 , https://www.jpmm.com/research/content/GPS-4506962-0 , and https://www.jpmm.com/research/content/GPS-4504178-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

All into Account: Food insecurity: War, weather and the weaponization of food

In this podcast we discuss the recurrent food security crises, which bring new challenges as supply side shocks, geopolitical risks, climate change and biodiversity loss magnify vulnerabilities across the global food system. Moderate or severe food security now affect 30% of the global population, or 2.4bn people and food insecurity is the “new normal” with climate change and biodiversity loss pointing to recurrent crises.
Three shocks tilt food prices to the upside—the breakdown of the Black Sea Grain Initiative (BSGI), new rice export restrictions and El Niño. Countries are bracing for ongoing food insecurity through increased stockpiling, seeking alternative supply routes and maintaining restrictions on food and fertilizer exports, and a number of countries are also accumulating stocks of food in reserve as buffers. Africa and EMEA are most exposed to wheat and rice shortfalls, while LatAm food supply is most exposed to weather-related shocks on food prices from El Niño.
Speakers
Joyce Chang, Chair of Global Research
Nicolaie Alexandru, Head of EMEA EM Economics Research
Toshi Jain, India Economist
Vinicius Moreira, Brazil Economist
Natasha Kaneva, Head of the Global Commodities Strategy
Virginia Martin Heriz, Head of ESG Research Methodology and Integration
Amy Ho, Strategic Research
This podcast was recorded on September 6, 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 - September Chartbook: For how long will “bad” be interpreted as “good”? Stay OW Growth vs Value, keep fading Cyclicals, such as Autos and Industrials

Speaker - Mislav Matejka, CFA, Head of Global Equity Strategy
Divergences keep opening up between the resilient equity markets and softening dataflow. Manufacturing PMI recovery, that was the consensus call for months now, remains elusive, and there are signs of services weakening, as well. There is no regional convergence coming through, with Europe disappointing further, and China staying mixed. SX5E had gone nowhere for half a year now, and has lagged the US since May, coincident with our downgrade to UW, but the relative performance of SX5E vs bonds has opened up a big gap with IFO, worth 20%+. How will it close? Also, even as Cyclicals finally stalled somewhat in August, the gap with PMIs remains significant. In a sense, bad is so far still seen as good, but this could change if labour market and consumer dataflow starts disappointing. Bond yields look set to move lower in that scenario, which will keep supporting our OW Growth vs Value call that we had on this year, at least in relative terms, but the bond proxy sectors should be logically getting a bid, too. Cyclicals stalled in August, keep fading them, in particular Industrials and Autos.
This podcast was recorded on 03 September 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4502246-0  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

Equity Strategy : Bond yields, China, PMIs and the market leadership

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
Month to date, in SXXP, Healthcare, Energy, Insurance, Staples and Utils are top sectors, a big change from earlier in the year, while the worst are Mining, Autos, Industrials, Travel & Leisure, Semis and Homebuilders. This reversal in leadership coincided with bond yields breaking out higher in August, from 4.0% to 4.30% for US 10 year. Can Defensives work if yields are going up, and should yields be going up in the first place? We think that bond yields’ move is to a good extent driven by inflation forwards moving up, US debt downgrade, and demand-supply worsening, and not just due to forecasters abandoning their recession calls. If the above remain the dominant drivers, then it is unlikely that high-beta stocks will benefit from this; i.e., bond yields might be rising for the “wrong reasons”. MSCI China made new ytd lows last week, down 20%+ from Jan high. This usually mattered for the broader Cyclicals complex, and not just for Miners. Lastly, Eurozone PMIs are meaningfully down since May, coinciding with our downgrade to UW. As we feared, the positive convergence, which was the consensus call over the past 3-4 months by forecasters, is not coming through, PMIs appear to be converging to the downside. Our lead indicators continue to point to no meaningful recovery in the near term. Despite recent Cyclicals stalling, the gap between PMIs and market internals, which we highlighted in our July Chartbook, is still significant. We do not see bond yields moving higher from here, at least not for the right reasons, China is likely staying under pressure, and PMIs are weakening. Put together, we think that Cyclicals can show another leg lower.
 
This podcast was recorded on 28 August 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at
https://www.jpmm.com/research/content/GPS-4498704-0  
for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 

Equity Strategy: Growth-Policy tradeoff is poor into year end; Defensives to catch a bid

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
Compared to the start of the year, clearly investor expectations, market positioning and the equity valuations have moved up. Recession projections have been erased, there is no more fear, only complacency. While positioning was rather cautious at the turn of the year, many indicators point to significant investor involvement currently. SPX P/E has moved from 17x in January to 19x forward at present. Even ex Tech, multiples have rerated. Relative to this optimism, it is not clear to us that the Growth-Policy tradeoff has materially improved. China continues to disappoint, we believe one should keep fading any stimulus-induced bounces, and Europe has also lost momentum, especially since May, coinciding with our downgrade. On the inflation/policy front, it is likely easier for inflation to move down from say 10% to 5%, but the move from 5% to 2% becomes incrementally harder. Central banks could stay higher for longer, which would limit any prospect for multiple expansion, and the market would then need to solely rely on earnings growth for upside. On earnings, we note that full-year EPS projections are not inflecting meaningfully higher, current PMIs are consistent with continued earnings downgrades. European equity indices have struggled to deliver gains for a while now. SX5E is currently at the same levels it held in February, it didn’t advance for 6 months. Despite this, we do not see any upside from here into year end, and we reiterate our year-end targets that we first unveiled last December, of 4150 for SX5E. This offers only marginal downside from current levels, but we think there is a good chance that equity markets move meaningfully below our year-end projections in the interim. In terms of key positioning, we were OW Growth vs Value this year, but the Tech run is becoming heavy, so we think that pure Defensives look the best into year end, in addition to the Energy sector.
 
This podcast was recorded on 20 August 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4493429-0  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

All Into Account: Cross Asset Strategy: ‘View on EM stocks given the China slowdown’ with Pedro Martins, Chief EM Equity strategist

Recent developments such as the spectre of property default, worsening exports, and disappointing TSF credit point to further slowing in China, and Chinese stocks must cheapen further before they become interesting again. Ex-China, EM stocks are still cheap and under-owned, with the current P/E discount much wider than the already wide historical discount.
Speakers:
Thomas Salopek, Global Cross Asset Strategy
Pedro Martins, Chief EM Equity strategist
This podcast was recorded on date.
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4486467-0, www.jpmm.com/research/content/GPS-4486687-0, for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

All into Account: ‘Supply picture shifting for US Bonds’ with Jay Barry, Co-Head of US Rates Strategy

 
 
 
Speakers:
Thomas Salopek, Global Cross Asset Strategy
Jay Barry, Co-Head of US Rates Strategy
 
This podcast was recorded on 07 August 2023
This communication is provided for information purposes only. Institutional clients can view the related report https://www.jpmm.com/research/content/GPS-4479744-0  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.