JP Morgan's Kerry Craig

Large caps in the US are increasingly attractive due to their resilience in the face of international developments, including trade tensions with China, according to JP Morgan executive director and global market strategist Kerry Craig.

Speaking at a media briefing in Sydney this morning, Craig said JP Morgan would continue its cautious approach but is focusing more on quality assets in terms of allocations, “which really means large caps”.

When you drill down into those large caps the US stood out over other regions, Craig continued, especially when looking at the amount of companies being upgraded versus downgraded (see graph). “It’s only the US that stands out in that metric, everything else looks relatively weak,” he added.

Source: Bloomberg Finance

US large caps are better able to withstand market interruptions, Craig argues, because they’re relatively insular.

“The reason we like US large caps is they’ve been, over time, more resilient to changes. They’re not as sensitive to international developments as other markets because they’re more inward facing. As long as the US economy is doing well the markets are doing well.”

Despite a slowing economy in the US, Craig says it’s “still looking better than everywhere else”, including Australia. The Australian market has rallied so much – with equities returning 19.7 per cent in the year to date – that high valuations make domestic stocks “very hard to get excited about it”.

“We’re very conscious about the valuations in Australia being very high,” Craig said. “The last time they were this high was in 2007, when the market was at its prior peak. And the earnings were much better than what they are now.”

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning.
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