Kerry Craig

After a disastrous 2022, the new year will be better for investors, predicts J.P. Morgan executive director Kerry Craig.

In a media briefing on Thursday, Craig said last year was a disaster for investors due to several reasons, including inflation and attempts by the Federal Reserve to bring down spiralling consumer prices with interest rate hikes.

Craig explained that cooling inflation, a peak in policy rates, and better valuations will help improve asset returns this year. China re-joining the world after COVID-19 will also be a positive for the global economy. Regional emerging markets and local equity market performance will also serve it well. Developed market equities are being significantly discounted, but earnings revisions are still falling due to pressure on margins and top-line growth.

“We think there’s probably going to be more of an adjustment around the earnings outlook, which will prevent that leg up in the equity market,” Craig said.

He added that J.P. Morgan is remaining relatively cautious on equities as well. The financial services company is also “thinking about the volatility that could create and thinking about the need to be very, very active in this environment.”

“Overall, though, we’re more positive on bonds and equities.”

Soft landing

The International Monetary Fund released its most recent review of Australia’s economy at the start of the month, which found it is on a narrow path to a soft landing.

“With a rapid post-pandemic economic recovery and favourable terms of trade, Australia has reached a stronger cyclical position than many other advanced economies, with limited scarring,” the IMF said.
Treasurer Jim Chalmers welcomed the confirmation in a media release on Thursday.

“The independent assessment from the IMF backs our strategy to build a stronger, more inclusive and more resilient economy that can better withstand future shocks,” Chalmers said.

On the other hand, Craig said the economic path is not really about a soft landing anymore.

“It’s really about the fact that we are thinking about that three-speed economy in terms of Europe being a little bit better; China is accelerating; and the US is likely to avoid a recession to a certain extent now, but it’s touch and go.”

It is ‘touch and go’ because J.P. Morgan’s economic data shows it is likely to fall into a recession. As a key catalyst, Craig pointed to a decline in the US Manufacturing Purchasing Managers’ Index (PMI).

“Whenever the leading economic index has fallen by as much as it has today, the US has always fallen into recession, it’s never seen a false signal,” Craig said.