Pictet | Frankfurt, 09.06.2016.
“Economic momentum is slowing worldwide at a time when there is political upheaval in Europe and growing uncertainty over the direction of US and Chinese monetary policy,” says Pictet Asset Management’s chief strategist Luca Paolini.
“Against this volatile backdrop, we have cut our equity exposure to neutral from overweight. We upgrade gold, a defensive asset that tends to do well in volatile times, to overweight from neutral. We remain underweight in bonds. Overall, we have reduced exposure to risky assets.
“A possible interest rate rise in the US in the summer, an economic slowdown in China and the UK’s EU membership referendum are among the risks confronting investors.
“In terms of our regional equity weightings, we have trimmed emerging market exposure on concerns that the recent revival in the Chinese economy might prove short-lived. Economic activity across China has cooled, which is all the more worrying as the slowdown comes at a time when authorities appear to be draining some of the liquidity they provided earlier in the year.
“Europe and Japan remain our favourite equity markets in the developed world because of these regions’ ultra-loose monetary policies, which should boost economic growth and corporate earnings.
“We maintain a cyclical sector tilt via an overweight in materials and consumer discretionary stocks. Consumer staples, by contrast, trade are expensive. Utilities are also unattractive.
“Developed world bond markets have been factoring in the prospect of a summer US interest rate hike. Further to recent payroll data, however, expectations of a rise have declined dramatically.
“We still think a July rate increase is a possibility, more than a one in five chance the market attributes to it. Due to disappointing jobs data in the US a rate hike in June seems less likely ahead of the UK’s EU referendum. US economic data do not present a particularly compelling case for a tightening of monetary policy over the very near term.
“In corporate bond markets, we believe technical and seasonal factors are beginning to turn in favour of US investment grade debt –the asset class tends to fare better than riskier debt during the summer months, and that pattern should also hold this year. We consequently raise US investment grade bonds to neutral and reduce exposure to US high yield, taking profits as the asset class has out-performed – particularly in the more volatile energy sector.
“Emerging market US dollar denominated bonds are also attractive whilst we retain a neutral stance on emerging market local currency debt. Emerging market currencies could see renewed volatility ahead of the next two rate setting meetings in the US.”
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Notes to the Editor
The Pictet Group
Founded in 1805 in Geneva, the Pictet Group is one of the premier independent asset and wealth management specialists in Europe, with EUR 389 billion in assets under management and custody at 31st March 2016. The Pictet Group is owned and managed by seven partners with principles of ownership and succession that have remained unchanged since foundation.
Based in Geneva, the Pictet Group employs more than 3,800 staff. The Group has offices in the following financial centres: Amsterdam, Barcelona, Basel, Brussels, Dubai, Frankfurt, Hong Kong, Lausanne, London, Luxembourg, Madrid, Milan, Munich, Montreal, Nassau, Paris, Rome, Singapore, Turin, Taipei, Tel Aviv, Osaka, Tokyo, Verona and Zurich.
Pictet Asset Management includes all the operating subsidiaries and divisions of the Pictet Group that carry out institutional asset management and fund management. Pictet Asset Management Limited is authorised and regulated by the Financial Conduct Authority.
At 31st March 2016, Pictet Asset Management managed EUR 136 billion in assets, invested in equity and bond markets worldwide. Pictet AM has seventeen business development centres worldwide, extending from London, Brussels, Geneva, Frankfurt, Amsterdam, Luxembourg, Madrid, Milan, Paris and Zurich via Dubai, Hong Kong, Taipei, Osaka, Tokyo and Singapore to Montreal.
