JPMorgan Optimistic on Tech-Cyclical Combination, Recommends Adding Healthcare Sector
JPMorgan's latest report indicates a favorable outlook for a "Tech + Cyclical" combination in stock allocation, recommending the inclusion of healthcare as a third investment theme to reduce the overall portfolio's correlation with macroeconomic factors. The report mentions that the tech sector presents opportunities for a rebound from oversold conditions, with the forward price-to-earnings ratio of the "Seven Giants" of the U.S. stock market (excluding semiconductor companies) falling below two standard deviations from the average since 2018, suggesting a potential upside of about 56% if it returns to historical averages. JPMorgan believes that market concerns over AI investment returns are overstated, as orders for large-scale cloud computing companies have increased by approximately 150%, outpacing the roughly 80% growth in capital expenditures, highlighting mean reversion opportunities for AI-related assets in the Asia-Pacific region. In terms of cyclical sectors, the report suggests shifting from financials and consumer stocks to industrial stocks, as industrial companies are expected to benefit from global economic improvement, profit recovery, and valuation reassessment driven by AI themes. Additionally, the report recommends allocating to the healthcare sector as a defensive asset due to its lower correlation with macro cycles, which helps reduce portfolio volatility. In emerging markets, JPMorgan is optimistic about Chinese Hong Kong stocks, believing they will benefit from AI infrastructure development and commercialization trends, although their gains have lagged behind those of South Korea, Taiwan, and A-shares. At the same time, it suggests taking some profits on AI supply chain targets that have seen excessive gains and crowded positions. The report also focuses on Asian refining companies, noting that geopolitical uncertainties have driven Asian refining margins to historical highs.
-- Price
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