* The JPMorgan view on 2011 strategy (Jan Loeys) – An aggressive overweight of equities, commodities, and high-yield, versus government and HG bonds. Top ten trades: (1) long global equities versus bonds; (2) long cyclical versus non-cyclical stocks; (3) long small versus large cap stocks; (4) outright long US high-yield; (5) outright long high-quality CMBS; (6) long ADXY; (7) short UK gilts versus GBI, FX hedged; (8) short local EM bonds (GBI-EM) vs GBI, FX hedged; (9) long commodities (GSCI); and (10) long agriculture.https://mm.jpmorgan.com/
* Flows and liquidity theme for 2011 (Nikolaos Panigirtzoglou) – (1) Retail investors to shift from bond to equity funds, (2) Hedge funds flows should continue to improve in 2011.https://mm.jpmorgan.com/
* European equity strategy (Mislav Matejka) – Outright bullish on equities. 1. Global activity is stabilizing post the summer slowdown, and JPM expects a move to above-trend pace in 2011. 2. Profit margins are set to continue rising and consensus earnings expectations are reasonable. 3. Equity valuations are not priced for perfection at 10.5x forward P/E in Europe, a 20% discount to historical multiples . 4. Despite continuing peripheral concerns, the credit market is open, with a record low cost of debt. 5. DM policy stance diverging from historical patterns as policymakers are almost directly targeting equities/confidence through asset reflation.
* China tightening – Mislav Matejka points out that during prior tightening cycles equities tended to do well, with Mining outperforming in EU markets. In addition, it is happening against a backdrop of strengthening economic momentum, in contrast to the 1H. Comments from JPMorgan China collegues (Frank Li, Samuel Chen) supportive of this view: monetary management in China is quantitative rather than indirectly managed by price. In FY11E, China’s new loan target is most likely to be set at FY7.5 trillion, which translates into nearly 16pct (rather than the "whisper range" for loan growth of 10 to 15%). This is because of the expected higher than expected GDP growth for FY11 (JPM's real economic growth at 9 percent versus 8 percent of the government's target): (1) consumption should remain strong given pro-consumption policies and the wage hike (2) the expected strong export growth on synchronized global recovery (3) FY11 marks the first year of China's 12th five year plan, which normally shall see a lot of new investment projects kicking off ground.
* Commodities – Global Head of Commodities Research and Strategy Colin Fenton recommends investors to be fully invested in this asset class, with 12-month total return forecasts for both the S&P GSCI Enhanced Total Return Index and the J.P. Morgan Commodity Curve Index (JPMCCI) of +19%. We are bullish on oil (we do not view US$90 oil as a ceiling), decidely construtive on agricultural commodities, mixed on metals (we like copper, tin, palladium, platinum, moderately bullish gold and silver, but negative on zinc and nickel https://mm.jpmorgan.com/
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