Taking a cautious view, the Swiss private bank has been increasing fixed income exposure, expecting that rates will remain higher for longer. It argues that regardless of what happens, history teaches that investors tend to regret exiting a market.

The head of macroeconomic research at Pictet Wealth Management argues that if inflation persists in economies such as the US but doesn’t exceed 3 per cent on a sustained basis, then equities can continue to do well over the longer term.

Still, the Swiss firm has gradually increased its exposure to fixed income markets as interest rates are expected to remain higher for longer.

Pictet’s managers are, like their peers, trying to chart a course through the turbulence following President Donald Trum’s “Liberation Day” tariffs, geopolitical disturbances and the aftermath of the pandemic.

One fact appears clear – whenever there have been crises in the past that encouraged investors to sit on the sidelines and exit markets, they later regretted it, Frederik Ducrozet (pictured), head of macroeconomic research, Pictet Wealth Management, told WealthBriefing in a recent interview at its Geneva HQ.

“Trying to time a market is not worth the effort,” he said. “The case we make [to clients] is that you have to focus on the longer term.”

Ducrozet, who hails from France and has been at Pictet for 10 years, said he could not recall a time when the macroeconomic climate was so varied, and where there was such a variety of opinions about what to do. Trump’s break with half a century of broadly free trade economic policy is one part of that picture, he said. 

“There are more questions than answers on [US] tariffs,” he said, reflecting on how, even if trade deals with China, the EU and other jurisdictions are reached, a “hard floor” of 10 per cent US tariffs on imports will stay, taking them to the highest since 1937 under F D Roosevelt.

We spoke to Ducrozet ahead of the US administration’s package of tax cuts – the “big, beautiful bill” – was unveiled. Even so, he talked about how tax cuts and deregulation – a sort of riff on “Reaganomics” – was a trend for investors to note. On a cautionary note, the US budget deficit is 6 per cent of GDP, which is a high figure considering that the US is not in a recession.

Another cautionary factor has been speculation on whether the Trump administration might impose withholding taxes on holders of US Treasuries – a move that has already rattled international investors. The US Supreme Court recently signalled that Trump cannot sack Federal Reserve Chairman Jerome Powell. “This is a line you cannot cross, or you will crash markets,” Ducrozet said. That episode also reminded Trump and others that the bond market acts as a constraint.

Dollar on the way out?
We asked Ducrozet whether he is, in the long term, expecting the US currency to lose some of its global reserve currency status. “It is not clear now to know if the change [in that status] is accelerating,” he replied. 

Asian assets, including those of Japan, are starting to look more attractive, he said.

“In the last 15 years, the valuation of US dollar-based assets has become extreme, and some change was always going to happen,” Ducrozet continued. 

In the short-term, US tariffs have an inflationary impact. Longer term, they are more likely to be deflationary, he added.