Buy China Stocks, Debt in ‘Dawn of Alpha,’ JPMorgan’s Santos Says

(Bloomberg) -- JPMorgan Asset Management’s Gabriela Santos says portfolio managers will be pushed harder to outperform in increasingly volatile markets, and investing in China will give them an edge.

“Volatility is going to stay higher for longer,” the firm’s global market strategist told Bloomberg TV’s Surveillance on Tuesday.  “China is a really important piece of this puzzle because you can add alpha in Chinese markets. We project for China to have the highest returns over the next decade, double for Chinese A shares versus the U.S. and double for Chinese local-currency government bonds versus U.S. Treasuries.”

Santos says finding financial assets that will outperform market benchmarks is becoming the new blueprint for portfolio strategists. Achieving beta, or broadly speaking taking on the same risk as most investors in a market and getting similar returns, may be giving way to what she called “the dawn of alpha.”

“For the last 15 years or so, it was all just about being invested and riding returns of indices,” she said. “We only project beta returns going forward of 4.3% annualized. So we got to work harder to generate the same returns as the last cycle. And that’s where alpha comes in.”

And China helps get an investor to alpha. “There’s a lot of improvement that can happen on returns by adding Chinese assets,” Santos said. “And you also get a diversification kicker from those markets. They really beat to their own drum. You’re seeing that in action this year.”

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