There are two things that give Marko Kolanovic confidence in his bullish stocks call for 2022, even after a difficult start to the year for financial markets, with rising inflation and Russia-Ukraine tensions.
The co-head of global research at JPMorgan Chase & Co. has been asserting for some time that investors should buy dips in stocks -- but now he sees the acute pandemic phase of Covid nearing an end and better times ahead from China, which he expects to offset Federal Reserve tightening. And he sees scope for significant rotation within equities as these changes take place.
“Our base case is the end of the pandemic completely,” Kolanovic said in an interview. “During the spring and summer we will have a very strong recovery because omicron is in fast decline and now the immunity rates are really, really high.”
He added that when looking at pandemics in the last century, they lasted about two years and maybe three to four waves, “and then for the next 10 to 20 years nothing. We think we’re basically at that point, two-plus years of pandemic, we’ve had the four major waves. And so we think now maybe we’ll be fine for the next 10 or 20 years.”
Improvement from China should also brighten the global picture in coming months, he said.
“We think China is making a significant inflection point in terms of stimulating their economy, via both monetary and fiscal policy,” Kolanovic said. “We also expect or hope on the regulatory side some easing of regulatory pressure.”
JPMorgan was named top global research firm and number-one equity research team in Institutional Investors’ survey results released last month, after already having been awarded number-one global fixed income research team. Kolanovic was elevated to co-head of global research along with Hussein Malik in September -- and still continues to publish research along with his colleagues frequently. In recent weeks he’s said that bond traders are overpricing a hawkish Fed, and that recession fears are overdone in small-cap stocks, for instance. In December, very early after the detection of omicron, he advocated buying the dip in equities because of data suggesting that variant could be less deadly than other strains.
Still, Kolanovic doesn’t necessarily see an easy path for investors this year.
“You add the geopolitical friction points like Ukraine, and you can really produce some large moves which we think could still play going forward,” he said. “Everyone’s talking about Russia and Ukraine and it’s a very idiosyncratic thing. But it is critically tied to oil, gas and global energy security. We like exposure to energy directly by sector, but also some of the countries. Perhaps Russia is not the right place to invest, but maybe some of the countries that are proxies for commodities, we like that as well.”
About a year ago, Kolanovic said in the interview, he was bearish on the categories of innovation, clean energy, special-purpose acquisition companies (SPACs), crypto, and Covid beneficiaries -- and said now that they’re now all down by around half from that point, he’s less bearish.