JPMorgan's Kelly Urges Investors to Diversify Outside US

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00:00David Kelly of JPMorgan writing, many investors should likely consider diversifying their portfolios

00:05by adding alternative assets and international equities. David joins us now for more. David,

00:10welcome to the program, sir. Let's get to that statement. Give us the why. Why?

00:15Because we've got a tortoise of an economy and a hare of a market. I mean, if you look at sentiment,

00:21it's practically submarine sentiment. People feel absolutely miserable about this economy,

00:26and I think that's overstated. But if you look at the economy itself, we're slowing down to a crawl

00:31in the fourth quarter. We're going to pick up a bit next year, but I think it's going to be less

00:34than 2% real GDP growth. But meanwhile, we've got this extraordinary stock market. We've got very

00:39high corporate margins. And on top of that, we've got price earnings ratios, which are close to the

00:45dot-com bubble peaks. And when I look at that, it is out of whack. And so people should do everything

00:52they can to diversify their portfolios. They've drifted into being very overweight,

00:56large-cap US equities. And so I think they need to row against the tide and add other assets which

01:01are just not that expensive. David, that's a struggle because the names we're talking about

01:05abandoning, NVIDIA, Microsoft, Amazon, Meta, Alphabet, these have delivered fantastic gains.

01:13AMD, Broadcom, on any given day, up 10%, 15%. David, do you really want to give that up?

01:19Well, there are two things. First of all, you've got to be tax smart about this. So you should use

01:25new cash, stuff that you don't have to pay capital gains tax on, to try and rebalance the portfolio.

01:30But second, if you go back to the dot-com bubble, and there are growing echoes of that and what we're

01:35seeing here. Every company was not a winner. There were some great companies which exist today and

01:40which are leaders today, which were leaders back then. But there are many other companies,

01:45more companies who disappeared then. So I think people just have to be very careful about valuations

01:50company by company here. And I just think that everybody is essentially overweight,

01:57the most expensive part of global capital markets right now.

02:00So where do you suggest they should be looking?

02:03Well, the first thing is US investors are chronically underweight the rest of the world.

02:08And one of the things we've seen so far this year is the dollar has been coming down.

02:11And we know that the Fed is very likely to cut the end of this month and probably cut again and

02:16just keep cutting, even though the economy is moving forward. Now, the European Central Bank is

02:22not going to be that dovish. I don't think the Bank of England is going to be that dovish. The Bank

02:26of Japan is going to be raising rates. So all that tends to push the dollar down. So the dollar will

02:30fall. And what we've seen in the past, and we show this in our Guide to the Markets, if you have a

02:34long period of dollar weakness, you also get a long period of international equity outperformance.

02:39And so I think that's the first place I would go is, you know, why do I only have 5% or 10% or 0%

02:46of my equity money in international? That's the first place I'd go. And then the second thing is

02:50just alternatives. Alternatives in general have not rallied as much as these sparkly champagne-filled

02:56public markets in the last three years. And that does leave some opportunities there.

03:00Bye.

03:02Bye.

03:06Bye.

03:09Bye.

03:21Bye.

03:22Bye.

03:23Bye.

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