Tracking the sentiment of ultra-high net worth clients across Europe, the bank finds investors are still optimistic about equities and shifting their gaze to alternative assets.
In the bank’s Autumn Private Client Survey of more than 500 ultra-high net worth clients across Europe, the picture remains a glass half full, with nearly two thirds (59 per cent) optimistic that the equity market still has room to grow.
But this view is joined by caution among the bank's investors surveyed across France, Germany, Italy, Russia, Spain and Switzerland: 41 per cent of them think that current valuations signal a stock market firmly in bubble territory and a downturn is on its way.
Trade tensions between the US and China that show few signs of abating into next year, have 40 per cent believing a potential global trade war is the greatest risk for emerging markets, even though forecasters see EMs bouncing back in 2019, JP Morgan said.
Escalating trade tensions remain the “biggest risk in our view and of most concern amongst our clients with a descent into a full-blown trade war likely to be negative for stocks worldwide,” said Oliver Gregson, head of JP Morgan’s UK & Ireland markets.
Between trade tariffs, higher interest rates and populist politics, “there’s been no shortage of uncertainty in 2018,” he said.
Also weighing on investors are concerns about the US dollar strength (25 per cent), China’s economic slowdown (18 per cent) and the US Federal Reserve tightening monetary policy (17 per cent).
While investors in Europe have cooled on the global stocks outlook since last being surveyed in the spring, many still see “late-cycle opportunities.”
“We believe we are closer to the end of the cycle than the beginning,” Gregson said. “However, late-cycle does not mean end of the cycle. As market conditions are likely to become more volatile, long-term investors should stay patient and maintain diversification in their portfolios.”
Over a third (38 per cent) of JP Morgan's high-value investors continue to see equities as the best-performing asset class over the next 12 months, followed by alternatives (34 per cent) and commodities (15 per cent).
Breaking this down by sector, over half see most opportunity in the healthcare sector, with many predicting that this traditionally defensive terrain will outperform as the business cycle matures and growing and ageing populations become the persistent demographic trend.