Leading US investment bank sees brighter outlook for Eurozone and emerging markets

JPMorgan's equity strategists maintain an upbeat outlook on risk assets, citing a calmer global environment, moderating inflation, and easing central bank policies, which are expected to support equities and keep bond yields subdued. The bank is particularly constructive on emerging markets and reiterates its upgrade for Eurozone equities, anticipating a rotation into exporters, French equities, and interest rate-sensitive sectors as China's outlook improves. While acknowledging risks such as a US labor market slowdown and AI trade froth, JPMorgan believes the overall balance favors equities, suggesting Europe's long-awaited catch-up may be commencing.

Analysis

JPMorgan's equity strategists are maintaining a strongly positive outlook on risk assets, particularly equities, citing a calmer global backdrop and moderating inflation. Chief equity strategist Mislav Matejka notes that easing central bank policies, supported by stable oil prices and slowing services costs, are expected to keep bond yields subdued and foster a gentler monetary stance through next year. This creates a more supportive growth-policy trade-off for global markets.

The bank is notably constructive on emerging markets, having turned positive earlier this year, and reiterates its upgrade for Eurozone equities, anticipating a breakout from their sideways drift. An improving China outlook, including a potential wealth effect, is seen as a key driver for global demand, benefiting European exporters. JPMorgan forecasts a rotation out of 2025's outperformers like defense stocks and banks, into exporters, French equities, and interest rate-sensitive sectors such as utilities and real estate.

Despite this optimistic stance, Matejka highlights potential risks, including a sharper slowdown in the US labor market, froth in the artificial intelligence trade, and crowded investor positioning. However, with policy easing in sight and growth stabilizing, JPMorgan believes the balance of risks firmly favors equities, suggesting Europe's long-awaited catch-up may finally be underway.

Key Decisions for Investors

• Consider increasing exposure to emerging markets and Eurozone equities, particularly exporters and interest rate-sensitive sectors, given JPMorgan's reiterated upgrade and positive outlook.
• Monitor for signs of a US labor market slowdown and potential froth in AI-related investments, as these are identified risks that could temper the positive equity outlook.
• Evaluate portfolio positioning for a potential rotation out of defensive sectors and banks, aligning with the anticipated shift towards growth-oriented and cyclical assets.