With the global economy expected to recover in 2021 amid positive news of the vaccine development, investors should consider investing in equity sectors that have been heavily hit by Covid-19, according to Tai Hui, Asia chief market strategist at JP Morgan Asset Management.
“As the global economy continues to recover, investors need to diversity globally to some of the sectors that are worst hit by the pandemic, such as financials, consumer discretionary, travel, energy and commodities,” he said in a recent virtual media briefing.
He also believes that the broader economic recovery should also benefit the beaten-up markets of Europe, the Asean and Japan.
While Hui previously warned of a sector rotation from growth to value, he continues to be positive on this year’s sector and geographical winners and believes that they should continue to be part of an investor’s portfolio.
“For equities, US, China and Northeast Asia are the core of a long-term strategic allocation,” he said, adding that Europe, Japan and emerging markets ex-Asia are “satellites”.
The technology and healthcare sectors should also continue to be long-term themes that will benefit investors, in spite of concerns that their valuations have become expensive.
Several firms have made similar views that investors should hold a diversified portfolio consisting of growth and value names, including Lombard Odier and T Rowe Price.
FIXED INCOME
On the fixed income front, JP Morgan’s Hui favours risk assets, which include corporate bonds, especially in the high yield and emerging market fixed income space.
“Very much like equities, we do think investors should take a slightly higher risk tilt when it comes to fixed income,” he said, adding that the prevailing low-yield environment should encourage global investors to take on additional risk to generate income.
“The investment case for corporate credit and emerging market debt remains compelling. Our strong conviction that central banks will maintain an ultra-accommodative monetary policy would support these fixed income assets.
“Should there be a delay in the development of a sustained medical solution or a more sluggish economic recovery, the risk of credit spread widening could be offset by more fiscal and monetary stimulus,” Hui said.
