(Bloomberg) — Safe-haven assets seen as traditional hedges aren’t panning out as they once did, according to JPMorgan Chase & Co.

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Easy-money policies may actually be keeping investors in cash and away from other traditional buffers, strategists led by John Normand wrote in a note Friday. That’s because such policies create a zero-yield environment where cyclical assets might be too difficult to hedge, they said.

This kind of conservative mindset may not become popular enough to affect the direction of risky markets, but it could discourage investors from deploying their cash into other asset classes, the strategists said.

“Defensive assets are delivering their weakest performance and therefore worst hedge protection of any equity sell-off in at least a decade,” Normand said. “The wall of cash some hypothesize will inevitably flow into equity, credit and EM may remain very high indefinitely.”

The S&P 500 index is down about 8% from a Sept. 2 record on concerns about valuations, rising virus cases and uncertainty stemming from the U.S. election. Even as stocks dropped, the likes of Treasuries, yen versus the dollar, Swiss franc versus the euro and gold have done very little or even fallen.



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A portfolio of hedges like the yen versus all currencies, the dollar against emerging-market currencies and gold versus the greenback is still worth holding, JPMorgan said, as these have delivered gains in 60% to 80% of major stock-market downturns.

JPMorgan’s observations come amid an ongoing debate about the future of the staple portfolio split between 60% stocks and 40% bonds to balance risk and reward.

For some analysts, certain dividend-paying stocks may have a role to play. With the global aggregate bond yield below 1%, stocks with sustainable and growing payouts look relatively attractive, according to Citi Private Bank Chief Investment Officer David Bailin.

JPMorgan also said it sees the equity correction as largely over.

“Another two months will probably be required to resolve uncertainties around the degree of growth downshift and the direction of U.S. policy, but that timeline doesn’t imply that October and November must bring significant, further market declines,” Normand said.

“Markets might be three-quarters through their correction, assuming that global growth isn’t en route to sub-trend performance in the fourth quarter,” he said.

(Updates with Citigroup comment in eighth paragraph.)

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