Heat-maps: Key sectors in country recommendations - JPM

Heat-maps: Key sectors in country recommendations - J.P. Morgan

 

 

 

 

 

 

 

11/9

 

OW: India, Turkey, Mexico, Thailand and Philippines

UW: China, Brazil, (Australia)

 

 

Equities –– We focus our overweights on EM Asia, Cyclical stocks and US Home builders.

 

Equity markets are taking the Obama victory quite badly, with US stocks down some 4% on Wednesday and Thursday.

This has pushed up global bond markets, and credit spreads are wider, but commodities are largely ignoring this turmoil.

We don’t think an Obama victory truly changes the economic outlook, or risks, but it does eliminate the Romney hope that appeared to have been in market pricing.

 

Is this a high-beta trade? Not necessarily.

Last summer, as equity markets rebounded in June and July, Cyclical sectors actually underperformed.

The thin grey line in the top chart shows that Cyclical sectors have recaptured only a quarter of the underperformance seen between March and August and thus provide a better entry point.

Position indicators suggest that investors are underweight Cyclicals and overweight Defensives which is turn means that Defensive sectors are more vulnerable to position unwinding.

 

Across regions we favor EM Asia and Europe vs. the US. While the US is facing fiscal cliff risks, Asian equities are benefiting from concrete signs that economic activity is rebounding in China.