Funds Congress Highlights

Keynote: Economic Outlook: Navigating a Changing World, Karen Ward, Managing Director, EMEA Chief Market Strategist, J.P. Morgan Asset Management

This keynote addressed the complexities of making long-term investment decisions in a world that is increasingly politically uncertain. 

Actions and reactions: Governments are responding to political pressures with stimulus. The US administration is currently sending out significant tax rebates and Germany is embarking on a spending programme amounting to 12% of GDP. This stimulus is what’s driving GDP and corporate earnings which helps explain the dichotomy between the chaotic news headlines and seemingly buoyant financial markets. 

Noise versus signal: While investors should therefore filter short-term political noise, they shouldn’t underestimate the way in which the fabric of the global economy is slowly changing. 

Navigate geographic concentration given AI uncertainties: Global portfolios are materially overweight with US assets relative to historical norms and fundamental economic weights following over a decade of outperformance. Large technology companies are a significant part of this historical outperformance, having been investing aggressively in AI infrastructure and capabilities. But end-demand realisation and pricing power remain unclear. This period of adoption has the potential to create volatility. With roughly one-third of the S&P 500’s total market cap accounted for by this small handful of tech companies, investors should be mindful of purely passive approaches to US and global equities. Stocks that will benefit from a European recovery offer investors the ability to reduce tech exposure. 

Currency implications of capital reallocation: As capital rotates towards other geographies, the US dollar likely drifts lower over time. Currency choices can significantly compound or cushion relative returns, requiring explicit decisions rather than default positioning.

Optimal portfolio construction has changed: Investors can no longer rely on a stable negative correlation between stocks and bonds. Bonds still act as a hedge against recession risk, but investors need assets that will protect the portfolio in the event of an inflation shock. Diversification across geographies, currencies, and asset classes provides resilience against multiple risk scenarios given the unusual combination of policy support, elevated valuations, and geopolitical uncertainty.