JP Morgan AM releases guide to the markets

The building blocks of a more synchronised global recovery remain in place, according to the latest Guide to the Markets from JP Morgan Asset Management.

However, the guide also stressed that the bumpy ride for equity investors since the start of 2014 underscores that the world is still long way from normal.

The JP Morgan Guide to the Markets illustrates market, economic and investment themes using clear, concise charts to help financial advisers improve their investment conversation with their clients.

The newly released quarterly edition of the Guide highlights a number of other markets themes for investors in the quarter ahead:

• 2014 has been kinder to core fixed income assets than expected, but the US and UK are still on course for gradual monetary tightening. That will pose challenges for the asset class, especially longer dated bonds, but greater than expected policy divergence between the Anglo Saxon economies and the eurozone opens up useful opportunities for investors to diversify and protect returns. As the chart below illustrates, assets will react different to a changing interest rate environment.

• The European recovery has yet to be reflected in corporate earnings, as shown below. Investors will be closely watching to see if earnings growth materialises this year and whether that continues to support equity returns.

• After a volatile start to the year, emerging market assets are approaching their lowest price-to-book value in over five years, as illustrated in the chart below. At this level, history suggests that investors can expect reasonable returns going forward, but they should be prepared for a bumpy ride; weaker economic fundamentals means the asset class could remain out of favour for a while longer.

“We expected more volatility in 2014 and that is exactly what we have seen,” said Stephanie Flanders, chief market strategist for the UK and Europe for JP Morgan Asset Management.

“It’s a healthy reminder of why you should keep diversified, even when – especially when – there’s a wide consensus on the way things are going to go. So far in 2014 very little in the markets has gone according to plan.

“The unexpected resilience of fixed income assets in Q1 shows that investors and businesses are still a lot more risk averse than they were before the crisis. In that kind of environment, it pays to be a risk taker; that is why we would continue to be overweight risk assets. But continued very low inflation in the eurozone and growth worries in the emerging economies suggest a slightly more balanced portfolio than at the start of the year.”



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