Strate­gist for $1.7tr funds says rout has room to run

The Pak Banker - - BUSINESS -

Don't be fooled into think­ing the re­bound in stocks means we've reached the bot­tom, says Mar­cella Chow, who watches the world's mar­kets for JPMor­gan As­set Man­age­ment Inc.

The global strate­gist for the $1.7 tril­lion money man­ager says she's on edge, her clients are pan­icky and she's telling them to stash as much as 70 per­cent of hold­ings in bonds in­clud­ing U.S. Trea­suries. Calm won't re­turn un­til China's econ­omy im­proves and cen­tral banks re­gain cred­i­bil­ity with in­vestors, she said. She's wait­ing for oil to fall to as low as $22 a bar­rel, and in the mean­time she's bat­ten­ing down and try­ing to avoid volatil­ity.

Global eq­ui­ties have re­couped some losses since the end of last week af­ter a sell­off that sent them into a bear mar­ket for the first time in five years. Oil has climbed back to near $30 a bar­rel af­ter plung­ing to its low­est since 2003, banks have shaken off fears about their abil­ity to re­pay debt, and mon­e­tary pol­icy mak­ers from China to Europe have been speak­ing out to re­as­sure in­vestors. None of this con­vinces Chow the worst is over.

"Am I wor­ried? Yes," Chow said in a Feb. 15 phone in­ter­view from Hong Kong. "There's so much un­cer­tainty," she said. "Eq­ui­ties might not be a wise choice." Trea­suries are the best haven from a rout that wiped $7.5 tril­lion from global shares this year, said Chow, be­cause the Fed­eral Re­serve is un­likely to rush to raise in­ter­est rates again soon. Fed Chair Janet Yellen said this month con­tin­ued mar­ket tur­moil could throw the cen­tral bank off course from the mul­ti­ple in­creases it fore­cast for 2016. A mea­sure of U.S. govern­ment bonds has gained 2.4 per­cent this year. Stocks in Asia fell on Wed­nes­day, with Ja­pan's Topix in­dex drop­ping 1.6 per­cent as of 2:07 p.m. in Tokyo. The Shang­hai Com­pos­ite In­dex slid 0.3 per­cent and Hong Kong's Hang Seng In­dex de­clined 0.5 per­cent.

Hong Kong-based Chow joined JPMor­gan last year from Bank of Amer­ica Corp.'s Mer­rill Lynch, where she was an econ­o­mist for emerg­ing Asian coun­tries. In Septem­ber, she started telling in­vestors to shift to a 70 per­cent weight­ing for debt from an equal mix of stocks and bonds. Since the be­gin­ning of Oc­to­ber, the Bloomberg U.S. Trea­sury Bond In­dex has gained 2 per­cent, while a mea­sure of global eq­ui­ties has lost 4.3 per­cent. Gold, which has risen 14 per­cent in 2016, could eas­ily fall, says Chow, not­ing that JPMor­gan As­set sees it as cor­re­lated with other com­modi­ties. While in­vestors such as KKR & Co. rec­om­mend in­creas­ing cash as a buf­fer, Chow says that's a mis­take, too.

"Even though it's tempt­ing to hold cash given how crazy mar­kets have been, it's bet­ter to go for sta­ble bonds," Chow said. "At least you can gen­er­ate a few per­cent­age points in re­turns." Chow says she's anx­ious about China's man­u­fac­tur­ing slow­down as the coun­try trans­forms into a ser­vice econ­omy. The of­fi­cial fac­tory gauge sig­naled a record sixth straight month of de­te­ri­o­ra­tion in Jan­uary. Bil­lion­aire in­vestor Ge­orge Soros said last month the Chi­nese econ­omy is headed for a hard land­ing, while hedge fund man­ager Kyle Bass said the bank­ing sys­tem may have losses more than four times those of U.S. banks dur­ing the fi­nan­cial cri­sis.

"China's growth sta­bi­liza­tion story is still un­clear," said Chow, who sees e-com­merce busi­ness as one bright spot in Asia's big­gest econ­omy. "We have to wait and see what hap­pens." Oil could drop to as low as $22 a bar­rel, ac­cord­ing to Chow.

West Texas In­ter­me­di­ate traded at $29.23 as of 2:09 p.m. in Tokyo. Saudi Ara­bia and Rus­sia agreed Tues­day to freeze out­put at near-record lev­els. Oil pared gains af­ter the ac­cord was an­nounced, sig­nal­ing traders see no im­me­di­ate end to the global sup­ply glut. Crude mar­kets could "drown in over­sup­ply," send­ing prices even lower, ac­cord­ing to the In­ter­na­tional En­ergy Agency, which trimmed its 2016 es­ti­mates of global de­mand for the com­mod­ity last month. About 150 oil and gas com­pa­nies may go bust as a sup­ply glut pres­sures prices and pun­ishes rev­enues, said en­ergy con­sul­tant IHS Inc.

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