JPMorgan Says FX, Oil Among Few Assets Cheap on Long-Term Basis

(Bloomberg) -- Developed-market debt and gold are expensive by long-term measures while oil and agriculture are relative bargains, according to JPMorgan Chase & Co.

Using metrics like one-year forward price-to-earnings ratio for equities and spreads for developed- and emerging-market credit, only a handful of assets including some currencies and EM bonds are currently inexpensive, according to John Normand, head of cross-asset fundamental strategy.

“The fairly valued ones are DM and EM credit plus Asian equities,” he wrote in a note last week. “The expensive ones are most other equities plus DM bonds and gold.”

The findings are part of JPMorgan’s assessment of asset valuations after relatively rapid rallies from the depths of Covid-19-fueled selloff. A multi-asset portfolio would be around fair value when factoring in both growth and quantitative easing, and fair-to-rich if gauged versus prior periods coming out of recessions, Normand found in separate analysis of shorter-term measures.

Risk premium metrics in many of the markets tend to revert to the mean over a period of years rather than weeks or months, so they’re useful to strategic rather than tactical investors, according to Normand.

Some assets, like developed-market bond yields, might not necessarily conform to those long-term mean-reversion patterns, he said. “Others (like P/Es in Tech and therefore the S&P 500) are undergoing structural re-rating only partly related to the monetary policy environment.”

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