Investors should focus more on corporate bonds than stocks in the near-term given the recent resurgence in the pandemic and political uncertainty in the U.S., according to JPMorgan Asset Management.
There’s “room for more consolidation in global equities,” Tai Hui, the $2.3 trillion asset manager’s chief Asia market strategist wrote in a note. And while U.S. corporate debt — particularly high yield — and emerging market debt have a positive correlation with equities, they continue to benefit from “ultra loose” monetary policy from developed market central banks, he added.
This year’s rally in global stocks has slowed since September as investors took profits ahead of the U.S. presidential election and assessed the resurgence of the virus outbreak in America and some of Europe’s marquee cities. The MSCI All Country World Index has yet to recover from its 3.4% fall last month. Still, expectations remain of a backstop from central banks in case the momentum in economic recovery falters, as the Federal Reserve last month signaled it would hold interest rates near zero through 2023.
A gauge of U.S. high-yield bonds has returned about 1.8% since the start of the year after posting their first monthly decline in six months in September. Returns are positive again so far in October. The junk bonds, which plunged when the pandemic first hit markets, have handed investors about 27% since a March low.
Meanwhile, emerging market dollar bonds including sovereign and corporate notes have returned 2.5% so far this year, rallying a little over 18% since the March swoon.
While the U.S. election results will bring some certainty to markets, investors should look “for opportunities to add to a diversified portfolio of equities in anticipation of a more comprehensive global recovery in 2021,” the strategist said.