The S&P/ASX 200 Index (ASX: XJO) is edging higher today, up 0.57% in afternoon trade, continuing February's rebound.
But ASX 200 shares, taken together, remain down 4.5% in 2022.
The local and global equity markets took a big hit in January as investors mulled the impact of looming interest rate rises, both in the United States and here at home.
The US Federal Reserve is widely expected to raise its benchmark rate at least 5 times this year from the current record low of 0.25%.
The Reserve Bank of Australia (RBA) has signalled a more dovish path. But most analysts are predicting the central bank will also be raising the cash rate from the all-time low of 0.10% later this year.
Commonwealth Bank of Australia (ASX: CBA) economists now expect the first RBA hike to come in June.
Then there are the simmering tensions on the Ukraine border. Russian forces remain positioned for a potential invasion despite pulling back some armoured units. Another recent headwind for ASX 200 shares.
With that in mind, is now the time to buy the dip?
Is now the time to buy the dip in ASX 200 shares?
Timing the market is no easy feat, to say the least.
But investors who are eyeing ASX 200 shares following the recent pullback might be interested to hear US investment bank JP Morgan's bullish outlook for global share markets.
JP Morgan's latest global asset allocation report was spearheaded by the company's co-head of global research, Marko Kolanovic.
According to Kolanovic (quoted by The Australian):
Markets have been volatile recently and sentiment dour as investors grapple with monetary policy normalisation and geopolitical risks.
However, we believe risk asset markets have mostly adjusted to monetary policy shifts by now, short-term rates markets have likely moved too far versus what the central banks will ultimately deliver in hikes this year, and a China policy pivot can offset a good part of developed markets' central bank tightening impact.
While a shooting war between Russia and Ukraine remains a very real risk, Kolanovic said if this eventuated it "would likely prompt a dovish reassessment by central banks" and the impact on global markets, and ASX 200 shares, should be "limited".
"We expect risky asset markets to rebound as they digest these risks and sentiment improves, aided by inflows from systematic investors and corporate buybacks," he said.
Advantage commodities
As for how investors in ASX 200 shares might want to position themselves, Kolanovic – addressing global equity markets – said (quoted by The Australian):
We continue to favour value, cyclical and higher beta market segments given their still cheap valuations and light positioning, and since they are beneficiaries of rising bond yields and higher commodity prices. We also retain our commodities overweight, focused on energy, given our supercycle thesis and geopolitical risk asymmetry.
Even as central bank hawkishness has ramped up, with market assumptions perhaps having gone too far in some cases, the silver lining to the recent pain is that equities are better equipped to handle it going forward.
Then there's the pandemic recovery bounceback coupled with strong employment conditions in the US, Australia, and many developed nations.
JP Morgan's analysts forecast a "strong cyclical recovery" in 2022 with borders reopening, releasing pent-up demand. The Australian international border will open on February 21.
"Bearish sentiment seems overdone as the conditions for 'late cycle' or recession are not met," Kolanovic said. "Even as inflation has dented sentiment, ultimately the consumer is healthy given the strong jobs market."
If JP Morgan has this one right, leading ASX 200 shares could enjoy some healthy tailwinds in the months ahead.
