J.P. Morgan Asia Equity Strategy: Positioning Looks Stretched Only in Isolated Pockets So Far
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J.P. Morgan observes that overall positioning in Asia ex-Japan equities remains within neutral ranges, with stretched positioning confined to isolated pockets such as tech hardware and select consumer subsectors. Based on an analysis of regional fund positioning data, market sentiment leans slightly cautious, and significant capital inflows have yet to materialize. Global funds remain underweight Asia by approximately 0.5 percentage points relative to benchmark weights, indicating that broad foreign capital has not returned.
Valuations offer a mixed picture. The MSCI Asia ex-Japan index trades at a 12-month forward price-to-earnings ratio of 12.5 times, below the five-year historical average of 13.2 times. Meanwhile, earnings downgrades have slowed but lack a clear reversal, with an 8% earnings growth expectation for 2026 following a 2% downward revision over the trailing three months.
The firm maintains a neutral allocation to Asian equities, favoring value and defensive sectors. Financials and telecommunications present attractive defensive value due to low valuations and light positioning. Conversely, while tech hardware shows stretched positioning and demands caution regarding potential pullbacks, India's market positioning sits at historical highs, supported by robust earnings growth. ASEAN markets remain underweight with appealing valuations but suffer from weak earnings momentum. Geopolitical risks and global interest rate trajectories remain key variables.
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