From JPMorgan’s latest Global Market Outlook & Strategy report, a breakdown of the firm’s key equity ideas.
• We raise exposure to Commodity sector overweights and EM equity underweights as a hedge to rising geopolitical and inflation risks.
• Elevated positions by tactical investors leave equities vulnerable to a profit taking correction.
• We reduce our long exposures back to normal.
• To play the inflation threat theme within EM, we open an OW in Taiwan and ASEAN ex Indonesia vs. MSCI EM.
• Inflation is also becoming a problem for DM countries, putting pressure on central banks to raise interest rates despite a fragile growth picture. UK is the most vulner- able. Open OW in US (S&P500) Real Estate and Utilities vs. their UK (FTSE All-Share) counterparts.
• Across sectors focus risk on overweighting Energy. The Sector Momentum strategy remains on an upward trajectory. Stay long despite last month’s underperformance.
• OW small vs. large caps, in line with our bullish view for 2011. Small caps tend to do well vs. large caps in the second/third years following the ends of US recessions.
• Reduce to a token the overweight US vs. European Banks, which functions as a hedge against a return of the EMU periphery crisis.
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