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Stocks have room to run — but the global economy must pick up first, says JP Morgan

Key Points
  • "For the rally to really continue, I think the most important thing we're watching out for is whether the global economy starts responding to a more dovish Fed, a more dovish ECB, to more stimulus from China," says Tai Hui, J.P. Morgan Asset Management's chief market strategist for Asia.
  • Hui also said that recent economic data out of the U.S. and China offer some cause for optimism.
  • Investors have increasingly realized that while tensions between the U.S. and China will likely continue over the long-run, continued negotiations to reach a trade deal in the short-run are positive for the market.
Jerome Powell, chairman of the U.S. Federal Reserve, speaks in Washington, D.C. on March 20, 2019.
Andrew Harrer | Bloomberg | Getty Images

J.P. Morgan says there's still room for a global run-up in equities — but "the most important thing" is whether the world economy responds to efforts to spur its growth.

Stocks have recovered significantly in the United States and China and moved higher in Europe following last year's global markets tumble amid worries over rising interest rates, trade tensions and slowing economic growth.

However, accommodative policies by the U.S. Federal Reserve and the European Central Bank, as well as increasing efforts by Chinese authorities to boost the world's second-largest economy, have helped fuel stocks' rally this year, said Tai Hui, J.P. Morgan Asset Management's chief market strategist for Asia.

"But for the rally to really continue, I think the most important thing we're watching out for is whether the global economy starts responding to a more dovish Fed, a more dovish ECB, to more stimulus from China," Hui told reporters in Hong Kong on Thursday.

Concerns about the global economy spiked last year over tensions between the U.S. and its trading partners, with the International Monetary Fund cutting its global growth forecasts for both 2019 and 2020.

Hui, however, said that recent data offer some cause for optimism.

He cited Chinese combined data from January and February for fixed asset investment and industrial production, as well as some U.S. jobs figures, as positive signs.

"If these numbers continue to stabilize — and even pick up a little bit, as we move to the summer — I do think that this (stock) rally can continue," Hui said. "And I do think that we will see some stabilization."

'Three big rocks'

J.P. Morgan Asset Management is still advising its Asian clients to increase their allocation a "bit more" to assets including equities and emerging market debt, he said.

The firm is still "reasonably content" with the "risk-on profile" of those assets, he explained.

Also helping sentiment, he said, is that things are looking better this year on three risks that worried investors last year: A strong dollar on the back of the Fed tightening; worsening U.S.-China trade tensions; and China's economic slowdown.

"These three big rocks this year have become less of an issue," he said.

He noted that there's an increasing acceptance among investors that structural trade and geopolitical tensions between the U.S. and China are likely to persist over the long-run — even if a trade deal can be reached in the short-term. However, he said, their commitment to negotiations is a plus.

"As long as the officials from both sides are flying over to Beijing and Washington regularly, people will think, 'okay, they're talking, they're negotiating, it's never going to be easy but at least the talk hasn't died,'" he said.

"I think that, to me, will still give the investor or market some comfort," he said.