Equities have been outperforming other asset classes in 2017. Given the strong run in performance of stocks in 2017, would stocks still be the go-to asset class in 2018? According to JP Morgan, the answer is a resounding yes!

JP Morgan: 2018 Will Still Be The Year Of Equities

JP Morgan believes that there is a lack of asset class that could provide the same kind of returns as stocks. Thus, stocks look to be the best bet for 2018. In addition, with global trade activities well supported, corporate earnings will continue to be buoyed and raise valuations.

There were some market concerns of whether credit tightening from central banks will impede global economic growth. On that, JP Morgan notes that the tightening is still in its early stages and won’t become restrictive on the economies yet.

Investors Takeaway: Investment Themes for 2018

⦁ Rising Yields To Drive Value, Financial Stocks

JP Morgan’s core view is that global bond yields will move up steadily in 2018. This is driven by a combination of reduced central banks liquidity, rising inflation and resilient global activity. On this backdrop, value stocks could outperform in 2018 as yields rise. Thus, JP Morgan recommends increasing exposure to value stocks and reduce exposure on growth stocks. Financial stocks will also be the main beneficiary of the rising global yields in 2018.
Recommendation: Financials, Value Stocks

⦁ Cyclicals vs Defensives

Right now, JP Morgan views cyclicals as expensive. This is because cyclicals have re-rated and are looking outright expensive relative to defensives. Utilities, telco, healthcare and consumer staples are among the top sectors that fall into JP Morgan’s preferred defensive stocks.
Recommendation: Utilities, Telco, Healthcare, Consumer Staples

Investors Takeaway: Invest In Europe And Japan Through Exchange-Traded Funds

⦁ Europe

One region that JP Morgan is overweight on is Europe. JP Morgan highlights that EuroStoxx50 is on track to deliver its best performance in the last four years. JP Morgan foresees Eurozone’s real GDP to grow above trend again in 2018. The unemployment rate in Europe has already moved below its long-term average, which will continue to support consumption in the region.
Europe is currently attractively valued, both in absolute and relative terms. Eurozone’s PE has barely moved over the last two years, contrasting with the re-rating seen in all the other regions.
Recommended ETF: DBXT E50, Lyxor Europe

⦁ Japan

Japan is another region that JP Morgan highlights as a market to be overweight on. One of the key positives for the region is that the Japanese central bank policy is likely to diverge from the rest of the world. Instead of cutting back stimulus, Bank of Japan (BoJ) will continue to grow its balance sheet in order to achieve its two percent inflation target. This should translate to a weaker Japanese Yen and a positive support for Japanese equities market. JP Morgan also notes that Japanese equity valuations look attractive, especially if rising Earnings Per Share estimates sustains.
Recommended ETF: DBXT MSJAP