[SINGAPORE] What we've been witnessing in Asia and the emerging markets could just be a "bear-market bounce".
That's how JPMorgan Asset Management views the January rally. While Jasslyn Yeo, global market strategist at the money manager, sees the potential for more gains in the first half of the year, investors will need to reassess their positions for the second half.
Slowing economic growth globally is clouding the outlook for stocks even as a potential trade deal between the US and China will help risk-on sentiment, according to Ms Yeo. Moreover, while the Federal Reserve signaled it's pausing its interest-rate increases, there are still higher odds of hikes than cuts, she said.
"I am not willing to back off on the whole bear-market bounce story because there are increasing downside risks to growth," she said in an interview Friday. Her firm managed US$1.71 trillion of assets as of September. But the rebound could last only in the first half of this year because "we are in such a late stage of the cycle and recession risks have increased," she said about the US economy.
With a 6.8 per cent rally in January, the MSCI Asia Pacific Index had its best start to a year since 2012. The benchmark gauge for emerging-market equities climbed even more, 8.7 per cent. Both are still marred in bear markets.
While Ms Yeo didn't provide any stock-market estimates, she said she remains bullish on Asian shares excluding Japan and emerging markets in general for the first half of the year. Her reasoning: There's a higher chance of a US-China trade agreement this time around as President Donald Trump faces a reelection bid in 2020 and the world's second-biggest economy is slowing. Mr Trump said he may meet soon with his Chinese counterpart to finalize details of a deal.
Among Asian equities, Ms Yeo prefers China, Korea and Indonesia and remains cautious on India and the Philippines.
Emerging markets are likely to outperform their developed counterparts in a risk-on environment because of their higher beta.
She is selective in emerging markets because of upcoming elections in some Asian countries and the different stages of the economic cycle in Latin America.
She's positive on US Treasuries after the Federal Reserve pause in rate hikes and amid their safe-haven appeal.