Strategists at JPMorgan, led by Mislav Matejka, Global and European Equity Strategist, noted in a Monday report that while global equities may face a phase of correction over the summer due to uncertainties like geopolitics, international markets—particularly emerging markets—present robust upside potential overall for the second half of the year. Investors are advised to actively seize opportunities to build positions in oversold assets.
The report's analysis indicates that major global economies have demonstrated considerable resilience since the outbreak of the Middle East conflict. As the geopolitical risk premium is gradually digested by the markets, the upward momentum in international crude oil prices, inflation expectations, government bond yields, and the U.S. dollar index seen in the second quarter is expected to reverse. This shift would constitute a material positive for international equities. Concurrently, major central banks globally have largely abandoned aggressive tightening policies within this economic growth cycle, with inflation expectations remaining anchored. This macro policy environment is unlikely to undergo a fundamental reversal in the near term.
Regarding regional and sector allocation, JPMorgan emphasizes that while artificial intelligence (AI) has dominated capital market performance over the past period, "AI will no longer be the only investment theme in the market" over the next six months. Currently, overall U.S. equity valuations remain under pressure. In contrast, the appeal of international and emerging markets is systematically increasing. Data shows that since the Middle East conflict began, the forward price-to-earnings ratio for the Taiwan, China stock market has risen by 11%, with Italy and Spain up 1.5% and 0.6%, respectively. The strategist team explicitly favors the subsequent performance of the South Korean stock market, noting that its recent pullback has provided a good buying opportunity.
For the Eurozone market, which has previously shown weakness due to declining corporate profits, the report forecasts a rebound in Eurozone corporate earnings this year, driven by a recovery in the performance of value stocks, cyclical stocks, small-cap stocks, and export-oriented companies. Stock markets in core European countries like France are expected to join the rotation rally.
In contrast, the report maintains a cautious stance on the overall outlook for U.S. mega-cap tech stocks. Latest data shows the Roundhill Magnificent Seven ETF (MAGS), which tracks seven major U.S. tech giants, has fallen 1.3% year-to-date. JPMorgan advises investors to remain cautious towards traditional sectors like software, business services, and media, which are susceptible to AI-driven "cannibalization" of existing business. However, the recent technical correction in the Philadelphia Semiconductor Index (SOX) could be viewed as another phased buying opportunity.
Key recommendations for portfolio adjustments include the following core suggestions from the strategist team:
Reduce exposure to the defense sector: Although the Middle East geopolitical conflict persists, the marginal driving effect for defense stocks is diminishing. It is recommended to gradually reduce the weight of defense stocks in asset portfolios.
Increase allocation to basic resources and gold: The previous underperformance of the basic resources sector is entering a bottoming phase, presenting value for accumulation on dips. Simultaneously, as macro safe-haven demand diversifies, the strategic allocation value of gold is becoming increasingly prominent.
JPMorgan concludes in the report that the overall positioning style of global investors remains tilted towards caution, with ample cash still held across the market. This "light and defensive" capital structure implies that if irrational selling pressure hits U.S. and global stocks during the summer, market liquidity could quickly shift to provide buyer support, thereby further elevating the overall valuation floor for global equity assets.
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