- In the eyes of J.P. Morgan, a healthier U.S. labor market; easy credit conditions in Europe and data indicating further equity price gains in 2018 support the idea that there's further room to run in the stock market
- However, some analysts do not agree with this assessment
Global investors should not be put off by current equity market valuations and now is not the time to "de-risk" portfolios, according to one global market strategist.
"Despite the strong rally, valuations have not changed much since the start of 2017 in Europe, U.K. and Japan, as earnings have grown strongly," Mike Bell, global market strategist at J.P. Morgan Asset Management, said in a new report Tuesday.
"It is only emerging markets and the U.S. which have seen valuations creep higher as share prices rose by more than earnings expectations. With emerging market valuations starting from a low base, only U.S. valuations look somewhat expensive compared with their long-run average," he added.
In the eyes of J.P. Morgan, a healthier U.S. labor market; easy credit conditions in Europe and data indicating further equity price gains in 2018 support the idea that there's further room to run in the stock market.
However, some analysts do not agree with this assessment. Peter Toogood, chief information officer at Embark Group, told CNBC last week that in the current market conditions, there is little on offer that's interesting.
"Bonds are insane and fixed, equities are on highs that don't make sense … The only diversifier is gold and cash, that's the only thing left, because everything is expensive, period," Toogood said. Also, Sonja Laud, head of equity at Fidelity International, told CNBC that "there's not a lot left" for those seeking to make returns in the short term.
"Am I willing to go for the last percentage points or do I much more enter the camp of protecting the downside? That's a very interesting question," she said.
Nonetheless, Bell from J.P. Morgan is confident on equities in 2018 as he believes the global economic picture looks healthier.
"To me the greatest risk is that we get a pick up in inflation that causes the Fed to over-tighten," Bell told CNBC Tuesday morning. He added: "Realistically I think it's pretty unlikely that you'll get enough of a tightening this year to cause problems."
J.P. Morgan Asset Management forecasts between three and four new rate hikes by the Fed in 2018 — above the two rates that the market is expecting, according to a Reuters analysis of fed funds futures traded at the CME Group.
"We believe the equity market could withstand even four rate hikes this year but that if inflation was accelerating and that caused the Fed to hike a further three to four times in 2019 that could start to slow the economy in 2019 or 2020 causing problems for equities as they start to anticipate recession," Bell told CNBC.
Mark Haefele, global chief information officer at UBS, also said in a note on Wednesday that "it still makes sense to be invested in equities."
"We don't expect the same pace of gains as last year, but remain confident of positive equity returns. Our view is supported by solid global growth, the prospect of strong corporate profit growth and a supportive monetary policy backdrop," he said.