JP Morgan recommends buying dips in stocks, remains overweight emerging markets vs. developed ones
By Alexander Bueso
Date: Monday 31 Jan 2022
(Sharecast News) - Equity strategists at JP Morgan reiterated their call that investors should 'buy' into the dips in global stocks, pointing to oversold readings on stocks heightened uncertainty and the 'market internals' to back up their case.
In particular, they noted how their Vix signal had entered 'buy' territory during the previous week.
According to Mislav Matejka and his team, historically, whenever that had occurred outside of a recession, the S&P 500 was to be found standing higher one and six months later.
To that one could add technical indicators, such RSIs, that were now flashing oversold signals, and market internals that remained pro-risk.
"We continue to believe that one should be using the dips as the opportunities to add, and favour Cyclicals, Banks, Commodities, against Defensives such as Healthcare, and Tech, where we reiterate our Semis downgrade from [overweight] , done in December. Our [emerging market] exposure basket is up 6% ytd vs market."
"We believe that indirect China exposure could be an even better way to position than direct, through longs in a range of global cyclicals such as OW Mining and Autos."
Indeed, the strategists said they were overweight EM versus developed markets and within the latter preferred China, Indonesia, Brazil, Russia, Saudi and Thailand.
In particular, they highlighted how several of the factors that argued against exposure to China at the start of 2021 had now improved.
"At the start of last year the investor sentiment on China was complacent, hurdle rate of activity very high, policy was in tightening mode, and Chinese asset prices were at highs.
"All these four factors are more favourable currently. The general sentiment on China is cautious, which is good, as an upward surprise is much more likely. China activity indicators are near the bottom of the trading range. Policy is clearly not tightening any more, the imperative is to deliver 'stability.'"
Furthermore, EM had outperformed DM during most interest rate hiking cycles by the Federal Reserve and this time around, if one looked at their current account balances, EMs had "relatively smaller" imbalances.
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