Within three years, global markets could see another recession, a global market strategist has warned.
Speaking with Investment Adviser’s Julia Faurschou, Michael Bell, global market strategist for JPMorgan, suggested policy action by the US Federal Reserve might be the catalyst for a recession.
“Although in the short term we do not think the probability of recession is high, we think in the next three years or so, the probability is north of 50 per cent”, he said.
Mr Bell suggested this slowdown was likely to come out of the US, “purely because the cycle is further advanced there.
“The Federal Reserve will have to increase interest rates several times and eventually this will cause a slowdown in the US economy that will mean unemployment levels tick up.
“The current lengthy, protracted period of unemployment we have seen in the US could come to an end”, he warned.
Referencing JPMorgan’s recent Guide to the Markets report, Mr Bell said low bond yields and a maturing equity bull market made now a good time to look into less correlated alternative assets.
He said: “Liquid alternatives that play a similar role to what hedge funds would have done traditionally, but which allow more transparency and liquidity are more attractive at the moment.”
According to Mr Bell, investors need funds which do not just bet that equities and bonds will go up as they have done over the past give to six years, but also have the tools to bet the assets will go down, or which enable the investor to play value strategies such as taking sector bets.
However, he said emerging markets may not be as bad as some headlines have suggested. He commented: “While they have struggled because certain factors such as a strong dollar and weak commodity prices have caused headwinds, the gap in growth looked to be stabilising.”
Moreover, the data coming out of China has suggested risks are now slightly skewed to the upside - “we expect China to grow slightly over 6 per cent this year”, he said - and markets had already priced in a lot of bad news.
He added: “The key is to take an active position rather than an equity tracker as there is so much differentiation between the markets at the moment, so we would recommend a broad, active, emerging market fund”.
