Stay cautious, but FTSE 100 remains 'overweight', JP Morgan says

The consequences of Brexit would be long-lasting as there were no easy or quick remedies for the shift towards 'anti-establishment' politics over the past few years, which the financial community had tended to underestimate, strategists at JP Morgan said.

Last Friday’s EU referendum result was particularly akin to the opening of a ‘Pandora’s Box’ for the euro area, strategist Mislav Matejka said in a research note published on Monday.

However, on a currency-hedged basis the Footsie was still set to ‘outperform’, Matejka believed, thanks to its large exposure to emerging markets, defensive high-yielding qualities and the impact of the weaker pound on its components’ sales.

Helping matters, the Fed was unlikely to move much “if at all”, the broker added, which should keep the JP Morgan EMBI index of emerging economy debt, he said.

Against that backdrop, Matejka recommended being ‘overweight’ low-Beta stocks (those with lower correlations versus their respective benchmarks) and defensives.

Inflation forwards were making new record lows and bond yields were going nowhere, he added.

Hence, he opted for utilities, real estate ex-Uk, Telecoms, Healthcare and energy.

“Banks, Cyclicals, periphery and UK domestic cyclicals are likely to stay under pressure. We believe equities will make new lows for the year in 2H, we stay outright UW stocks for ’16. We might get a tactical buying opportunity at some point again, like the one we called for on 15th Feb, but not yet, not at these levels.”