Morgan Asset Management: Prefers to invest in the US stock market's technology and communication services sectors, with increasing upward momentum in the Chinese stock market

According to the Zhitong Finance APP, Sheng Nan, a global multi-asset strategist at Morgan Asset Management, stated that in the United States, the "Magnificent 7" tech stocks have valuation and earnings support, while the valuations of other S&P 500 stocks are close to historical highs. Given that technology adoption continues to drive rapid earnings growth in this sector, Morgan Asset Management will focus U.S. investments on the technology and communication services sectors. Outside the U.S., Japanese and Hong Kong stocks have valuation support. The overall momentum of the Chinese stock market is strengthening, and Morgan Asset Management expects this trend to continue. The Japanese stock market is expected to provide catch-up opportunities in the second half of 2025.

Tariffs may cause a temporary spike in U.S. inflation, with the core Consumer Price Index (CPI) expected to rise by 3.8% year-on-year in the fourth quarter of 2025. Morgan Asset Management anticipates that inflation pressures will ease in 2026, returning to the Federal Reserve's target by the fourth quarter of 2026. Outside the U.S., tariffs pose deflationary pressures on the commodity market. This environment allows European and Asian central banks to adopt more dovish policies without triggering inflation. A looser financial environment presents upside risks for growth outside the U.S., potentially narrowing the growth gap between the U.S. and other regions by 2026.

The Federal Reserve's economic forecast summary and market pricing indicate two rate cuts in 2025. However, given the continued strength of the labor market and rising inflation risks in the second half of the year, Morgan Asset Management expects only one rate cut in 2025, followed by two cuts in 2026 as inflation eases. Morgan Asset Management anticipates that the narrowing growth gap between the U.S. and other economies will put downward pressure on the dollar in the second half of 2025. Efforts by the U.S. to reduce the current account deficit through tariffs may also lower net demand for the dollar.

The second quarter GDP data for the U.S., expected to be released in July, is anticipated to be robust, indicating that the economy is generally running on trend in the first half of this year. Trade uncertainties may lead to economic growth in the second half falling below trend, but the risk of recession is manageable. In 2026, the impact of fiscal and tax policies in the U.S. should drive growth back to trend. Internationally, the combination of fiscal stimulus and looser monetary policy presents upside risks for growth, especially in 2026. This could particularly offset tariff concerns in regions such as Europe and China, creating a favorable environment for risk assets.

Morgan Asset Management is overweight on sovereign bonds, expecting U.S. 10-year Treasury yields to trade in the range of 3.75% to 4.50%. The trend of a steepening U.S. yield curve may continue, but it faces risks in the short term due to market congestion and adjustments in Federal Reserve pricing. Morgan Asset Management prefers non-U.S. sovereign bond markets, such as Italian government bonds and UK gilts, over Japanese bonds.

In terms of expanding fixed income, Morgan Asset Management is optimistic about high-yield bonds, which, despite spreads of only 300 basis points, are supported by strong corporate balance sheets, with overall yields approaching 7.5%.

In equities, most portfolios are close to neutral, but targeted risk preferences are achieved through regional and sector relative value views. Morgan Asset Management's optimistic outlook on the economy (greater upside risks to growth) supports earnings growth, particularly in 2026. However, many market valuations are far above long-term averages, posing a resistance to future returns