(Bloomberg) — The market’s worries over a hawkish Federal Reserve are overdone and investors should reconsider their affection for the safety of technology megacaps and start seeking out risky assets like beaten-down high-growth stocks and Chinese shares.
So says Dubravko Lakos-Bujas, JPMorgan Chase & Co.’s global head of equity research. In an interview on Bloomberg TV, the strategist said the market is currently pricing in an aggressive Fed, though his colleagues expect central bankers to take a more balanced approach to tackle raging inflation without snuffing out growth.
The specter of the Fed turning hawkish for the first time in three years has prompted traders to flock to tech giants with stable earnings and balance sheet. Meanwhile, risk is being dumped with high-beta stocks suffering deep losses. A basket of profitless tech firms has dropped almost 30% from its November peak.
“On growth side, it’s a fire sale. There are a lot of high-beta opportunities,” said Lakos-Bujas. “In the first half next year, assuming inflation shows signs of normalization, assuming the Fed ends up being more balanced and doesn’t continue to move forward with tightening, which I believe the market is pricing in, and assuming the Covid situation starts to come back under control, I think you’ll see a rotation from lower-beta megacaps into higher-beta.”
The strategist, ranked No. 1 quantitative strategist in this year’s Institutional Investor survey, also advised investors to get ready for a comeback in Chinese stocks. Hurt by regulatory crackdowns and the threat of delisting from U.S. exchanges, the Nasdaq Golden Dragon China Index has slumped more than 40%, poised for its worst annual performance since the global financial crisis of 2008.
“We don’t think the story is over,” Lakos-Bujas said, referring to the country’s long-term growth outlook. “We see a very large opportunity for the multiple and for sentiment to improve from extreme lows.”
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