Setting out its fourth-quarter asset allocation views, the US firm said it is taking a cautious view of asset classes and is negative on equities.

JP Morgan Asset Management said it is positioned cautiously in its multi-asset portfolios, staying underweight in equities, and neutral towards credit and duration.

The prospect of sluggish growth in the US and a recession in Europe, coupled with inflation likely to remain elevated – albeit down from current levels – means that risk is off the table for the US firm. 

The firm said that within equities, it prefers to spread its underweight stance across regions. 

“US stocks are higher quality but still expensive; European stocks are exposed to major event risk but cheap. Emerging market equities have already seen severe earnings downgrades, but the dollar – central to the emerging market outlook – looks set to remain supported,” JPAM said.

“Japan alone warrants a more neutral stance, with the weakness in the yen supporting Japanese earnings even as global growth slows. Otherwise, both our value- and our growth-tilted managers are taking a distinct up-in-quality bias, which is introducing further defensive characteristics across our equity exposures,” it continued.

Credit
JPAM continued that it strongly favours investment-grade debt over high-yield debt. 

“If we are right that equities have yet to see their cycle lows, then credit spreads are set to widen further, even if defaults remain contained. Overall, we have yet to reach the point where it makes sense to add risk in speculative grade credit,” it said.

As far as duration is concerned, the firm is maintaining a neutral view with a preference for US Treasuries over other major nations’ sovereign bonds. It thinks that German Bunds appear “particularly vulnerable to more hawkish policy in the eurozone.” (The term “duration” refers to how much bond prices are likely to change if and when interest rates move.)