JPMorgan AM’s Gartside remains defensive, despite the Olympic gloss
The Olympic games and improved weather may have taken investors’ minds off various challenges, but JP Morgan Asset Management’s international CIO for fixed income Nick Gartside remains cautious.
Well, looking at the Olympics medal table if you’re from GB you’re probably feeling pretty complacent; if you’re from Australia you’re probably feeling a little concerned. However, past performance is no guide to the future…
And so to markets. It really does depend on your starting point. On the one hand the world looks great: there’s a plan for the eurozone, measures of volatility remain at low levels and cash continues to cascade into assets capable of offering yield and the prospect of some return.
However, whilst there is a plan for the eurozone it remains just that – a plan. Critically the plan is conditional upon a country under stress requesting aid, and the accompanying monitoring, before the ECB rides to the rescue. Likewise, historically, low levels of volatility have usually presaged elevated levels of volatility. Finally, although cash continues to pour in, valuations have already moved a long way. Year-to-date returns for both high yield and emerging market debt are into double digits with equities powering even further ahead.
How to reconcile these differences? In the short run our concern is that markets, distracted by the Olympics and unusually clement weather, may be complacent. If we follow the pattern of 2011, September is likely to be hot. For this reason portfolios remain defensive.