“Some simple disciplines around rebalancing portfolios into markets that have underperformed and taking gains in markets that have outperformed is a great risk mitigation opportunity for for for investors and clients.”
He pointed to a higher for longer interest rate environment or a potential “shock” to the economy could lead to higher rates which was a risk that the market had not priced in.
“Particularly to the extent that you had 100 basis point increase in the US 10 year [Treasury yield] that would have other impacts that could cascade elsewhere into the economy, commercial real estate and other sectors of market,” he said.
“It is small percentage risk, but it is nevertheless out there.”
Speaking at the same event, JPMorgan’s head of the global rates Seamus Mac Gorain believes the Reserve Bank of Australia will be among the last central banks in the dollar block to start cutting rates, singling out an unclear outlook for inflation.
“The disinflation picture is clearest in the US and in the eurozone. And then there are some economies where it’s a bit less clear… Australia is another one of those economies,” he said.
JPMorgan still forecasts the US Federal Reserve to cut interest rates for the first time in June even as traders dialled back bets on the arrival of expected cuts in 2024, following a slightly hotter-than-expected US inflation print.
For Australia, he forecasts an underlying inflation figure at 3.5 per cent, compared to the 2.5 per cent for the eurozone.
He also alluded to the lack of an “immediate” impetus on the growth side for the RBA to embark on rate cuts even as consumption had been impacted by higher borrowing costs.
“On the whole, the [Australian] economy still seems pretty solid, and not least because, population growth has been so strong.”
He also said it was “odd” that the market has not only priced fewer cuts for the RBA this year but also for the next two years.
“I think that it’s difficult to imagine that the Fed will be cutting by cumulatively more than 100 to 200 basis points in the next few years, and you don’t see more cuts from the RBA,” he said.
“I think the market is right about the RBA for this year, but maybe hasn’t quite priced enough cuts for the following years.”
The journalist travelled to London courtesy of JP Morgan Asset Management.
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