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Quarterly Perspectives

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LATEST QUARTERLY PERSPECTIVES

5 UK labour market and consumer dynamics

Theme overview

UK equities: Knowing what you don't know
  • The need for the UK to achieve a transitional deal that will protect UK trade with Europe is mounting. Economic growth has already started to slow this year.
  • Given the upside and downside risks to the UK economy and the unpredictable path of sterling, a neutral stance on UK equities seems sensible.
  • While we do not have enough conviction to take large size or sector bets, active management at the stock level should still add value.
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Theme overview

US in late cycle
  • The US economy has entered late cycle, with the unemployment rate close to previous lows.
  • Low unemployment and healthy economic growth have historically led to a rise in wages, core inflation and interest rates.
  • Despite being late cycle, near-term recession risk remains quite low. Wages and interest rates probably have room to rise from low levels before they cause problems for companies and the economy.
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22 US labour market


16 Eurozone: GDP and inflation

Theme overview

European equities and the euro
  • Europe continues to show signs of a solid and broad-based recovery. The expansion is accelerating thanks to falling unemployment and rising consumption.
  • The European Central Bank (ECB) is likely to start reducing its quantitative easing (QE) purchases next year, with interest rates only rising once QE has come to an end.
  • A stronger euro doesn’t mean European companies can’t still deliver strong earnings growth.
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Theme overview

Japan: Improving corporate governance
  • Japan’s economy looks to be in good shape, with strong GDP growth, low levels of unemployment and improving business sentiment.
  • Corporate governance best practices have taken longer to be adopted by Japanese companies than other developed markets. This presents upside potential for stocks that can improve their delivery of positive shareholder returns.
  • Japanese equity valuations are not expensive compared with history or other markets and exhibit weaker correlations to other major equity markets. This means that investing in the asset class can help to diversify portfolios.
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28 Japan economic indicators