Investment Directors’ Bulletin – December 2014 - J.P. Morgan Asset Management
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Investment Directors’ Bulletin – December 2014

Contributors Edmund Brandt, Edward Walker
Equity markets bounce strongly in November

Global stock markets rallied from their October lows in November, led by strong performance from the developed markets, particularly the US. Market sentiment was shaped by the steep fall in the oil price and the strengthening US dollar, which had a negative impact on emerging economies, as well as the increasing divergence in central bank policy. As we move into 2015, the falling oil price is likely to dominate sentiment, causing volatility in the short term, but we believe that stock markets continue to offer good value for long-term investors.

Oil price plunges amid excess supply

The oil price continued its downward trend in November, falling sharply to a five-year low, as worries over weak global demand persisted. At its highly-anticipated meeting, the Organisation of the Petroleum Exporting Countries (OPEC) failed to address the excess oil supply, announcing that production quotas would not be cut to halt the rapid decline in the oil price. Looking ahead, there are strong reasons to believe that oil prices will not bounce back quickly to the USD 85 to USD 100 trading range that held for the last five years, given OPEC’s unwillingness to balance the market.

Commodity-exporting countries, such as Russia, Brazil and Australia, are obvious losers from the falling oil price, and these countries experienced significant currency weakness in the month. Energy importers, including the eurozone, China, India and Japan, have benefited.

Central bank policy continues to diverge

The declining oil price has also continued to exert downward pressure on inflation globally, leading to further divergence in central bank policy. With ongoing deflationary pressures in both Europe and Japan, the falling oil price is likely to lead to the European Central Bank and Bank of Japan undertaking further monetary stimulus measures. For those countries possibly raising interest rates in 2015 - such as the US and UK - the timing could be pushed back.

Meanwhile, economic growth trends in the US and UK continued to diverge from other economies in November, contributing further to the divergence in central bank policy. While improvement in both US and UK economic conditions has led to expectations for interest rate increases in both countries next year, continued weakness in the eurozone and Japan further supports the case for monetary policy to be eased, in an attempt to stimulate demand.

The outlook for stock markets looks positive

Looking ahead to the new year, continued divergence in economic performance and monetary policy, along with declines in the oil price, are likely to continue to lead to bouts of volatility and dominate sentiment. However, share prices continue to look attractive compared to government bonds and other areas of fixed income. Meanwhile, G7 central bank policies remain very supportive for riskier assets, in particular shares.

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Important information

Please be aware that this material is for information purposes only. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. JPMorgan Asset Management Marketing Limited accepts no legal responsibility or liability for any matter or opinion expressed in this material.

The value of investments and the income from them can fall as well as rise and investors may not get back the full amount invested. Past performance is not a guide to the future.