JP Morgan stays 'overweight' Financials, says duration of current dislocation is key

Equity strategists at JP Morgan reiterated their 'overweight' stance for Financials despite the escalating crisis in Ukraine, telling clients that the duration of the current dislocation and whether Russian commodity supplies would be cut off would be key.

"Historically, the vast majority of military conflicts, especially if localized, did not tend to hurt investor confidence for very long," they said in a research note sent to clients.

"The potential for unintended consequences in this kind of a situation is understandably high, but we don’t see commodity flows stopping."

Hence, they judged that European stocks and Banks should still be considered fundamental 'overweights' on anything more than a one-month horizon.

Nonetheless, they conceded that Financials were unlikely to perform as long as the crisis was dominating the headlines and government bond yields remained lower.

On the other hand, their overweight on Energy, a position they had also recommended at the start of 2022, had been reinforced.

Linked to the above, they also pointed out that a spike in oil prices towards $150 per barrel would be needed in order for economic growth to be hurt.