Tai Hui, JPMAM
With heightened geopolitical tensions and market uncertainty, the first half of 2022 has seen significant capital flows to money markets.
Yet, JPMAM expects the tide to turn soon.
“Despite cash performing really well in the first half of the year, we expect the performance of the money market to come down as both equities and fixed income return to generate positive returns,” said Tai Hui, chief market strategist at JPMAM, at a media briefing, which FSA attended.
In Singapore, money market funds reported S$446.3m in net inflows in the second quarter this year, with gross inflows amounting to S$2.8bn. In Hong Kong, money market funds attracted inflows of $448bn over the year ended 31 March, compared with net outflows in both equity and bond funds.
Hui believes interest rates will peak either later this year or at the latest in the first quarter of 2023, creating a constructive environment for both equities and fixed income.
In the near future, with growth decelerating, JP Morgan believes fixed income is likely to be a more stable opportunity compared with equities.
“Most of the detrimental impact on fixed income is likely behind us assuming that the full repricing of this year’s rate hikes is fully configured into bond yields,” said Hui.
“The move higher in rates and credit spreads has led to some of the most attractive yields or valuations seen in recent years.”
He favours companies with “a significant quality tilt”, meaning those with strong pricing power and better cash flow, as they do not have to borrow money and are able to protect their profit margin.
In terms of the outlook for Chinese fixed income, Hui believes there are still opportunities in the sector, but investors should stay cautious in about property.
He also favours government bonds, which are an attractive way to generate income.
But looking ahead, as the Fed policy rates start to peak and corporate earnings expectations start to stabilise, JPMAM thinks the rotation towards equities is likely to take place sometime later this year.