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Quarterly Perspectives

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LATEST QUARTERLY PERSPECTIVES

61 Fixed income interest rate risk

Theme overview

Investing for income
  • Income and capital return are usually the two ways investors can achieve gains in their portfolio. Income investing is typically the picking of securities that generate a stream of cash, such as traditional bonds and dividend-paying stocks.
  • Income investing is a commonly used strategy by investors who prefer lower volatility, or would like the frequent payments that income- generating securities or strategies offer. But many other types of investor can also benefit from adopting this approach.
  • At a time when fixed income yields are low and equity indices may see higher volatility in the coming months, it is going to be increasingly important for nearly every investor to consider ways to invest for income.
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Theme overview

America First?
  • US equities have outperformed other markets since the financial crisis. While we remain positive on the outlook for US equities, other markets may have more upside in the final years of this economic expansion.
  • Earnings and margins, which are coming off of a lower base, provide greater upside potential for non-US equities, particularly in Europe.
  • However, continued healthy earnings growth with upside risk from potential fiscal stimulus and late-cycle exuberance argue against going underweight US equities.
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46 US equities


71 Commodities

Theme overview

A new normal for commodities
  • 2016 saw an end to the declines in most commodity prices, which had been ongoing since 2011
  • Steep cuts in investment, reductions in supply due to low prices and gradual increases in demand have brought most markets close to balance
  • Prices are now likely to be range- bound for years, as materially lower prices should induce rapid supply reductions, while technological change and spare capacity mean any price increases will quickly be capped.
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Theme overview

China: Hard landing or safe touchdown?
  • With the recent increase in interbank lending rates, the authorities are aiming at a slowdown in credit growth and house prices, which have been growing at double-digit rates. However, the risk of an outright house price crash should be lower than in the past, due to a lower level of property inventories. While Chinese growth will probably slow in the second half of this year, a hard landing remains unlikely.
  • China’s economic and financial linkages to the rest of the world have undoubtedly been growing, but they are probably still not large enough for financial problems in China to cause a major downturn in the global economy.
  • Psychology matters for markets and levels of global confidence could well be affected by events in China. But on paper, at least, neither foreign banks’ exposure to Chinese debt, nor China’s share of global trade, are at levels that would be likely to derail the global economic recovery in the event of a serious slowdown in Chinese growth.
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30 China monetary conditions and housing