JP Morgan Asset Management (JPMAM) favours investment grade over high-yield corporate credit and generally remains cautious on risk assets, its chief market strategist for Asia Pacific, Tai Hui said during its fourth quarter outlook.
The year to date has been tough across all asset classes, although investors have started to regain their risk appetite during the third quarter, for example by buying corporate high yield bonds and developed market equities.
However, Hui said that JPMAM had not materially changed its view on asset allocation yet as he said the firm was still mindful of the downside risk to growth, which meant favouring fixed income over equities and taking an overall defensive approach to equities.
“In terms of asset allocation, we are still more conservative. We think that the growth uncertainties over the next six-to-nine months call for greater emphasis on portfolio resilience; a greater emphasis on fixed income over equities,” he said.
“That’s not to say there are no investment opportunity in equities. We just have to take again a more defensive approach, a quality approach, a domestic-focused approach when it comes to APAC equities.”
In high yield, Hui noted that valuations were fair or even slightly attractive but had not factored in the potential risk for recession and increasing default risk hence the firm’s preference for investment grade credit.
He noted that the yield to maturity for high yield was around 8.8% currently so said it was potentially attractive to long-term investors who are less sensitive to price volatility, although he said for short-term investors, it was riskier.
In equities, he noted that India and ASEAN have outperformed this year as they benefited from their Covid policies being relaxed and also the fact that they are not dependent on exports like Taiwan and Korea, both of which have struggled this year.
With regards to China, he said the firm was optimistic about its recovery over the long term, although it was very difficult to predict over the next six-to-nine months how this would fare so the firm remained cautious on equities and risk assets.
He said that JPMAM had fielded questions from investors looking to buy growth stocks such as tech and healthcare, although he said that with bond yields set to rise further, price-to-earnings multiples could come under further pressure.