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JPMorgan Says Trade Threats to Impair Risk Rally Through 2020

JPMorgan Says Trade Threats to Impair Risk Rally Through 2020

(Bloomberg) -- Trade uncertainty will be a “lingering cloud” over risky assets for at least 18 months, according to JPMorgan Asset Management.

Gabriela Santos, the firm’s New York-based global market strategist, said she’s becoming more cautious on developing-nation assets as persistent tension between the world’s largest economies is unlikely to abate anytime soon. It’s important to add more value stocks to portfolios to balance out growth stocks, she said.

“We don’t think we’ll go back to the sunshine of 2017, where we had a very risk-on positioning,” Santos said Tuesday on Bloomberg TV. “We go back to this lower-growth, lower-return, focus on income type of approach.”

Trade tensions are ruining what Santos expected to be a turning point two years ago for international equities on the back of economic and earnings growth momentum. Before that, she said it had been a “lost decade” in which they significantly underperformed U.S. stocks. While the trend of global easing will provide a floor to economic growth, keeping the probability of a recession low, geopolitical risks mean it’s not a time to “go all-in” on high-yield debt or stocks, according to Santos.

“Unfortunately, we were thrown that trade winkle, so we’re back to a scenario where the U.S. here in the short-term will probably outperform -- it’s more defensive,” Santos said. “But when we speak to our clients and look out five or 10 years, we think it eventually turns.”

--With assistance from Tom Keene.

To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net

To contact the editors responsible for this story: Julia Leite at jleite3@bloomberg.net, Philip Sanders

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