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Pictet Needs Catalyst Before Raising Equity Bets

Tom Burroughes, Group Editor , 7 May 2019

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The wealth management house is currently neutral on global equities, but positive about the Chinese and Indian markets.

Pictet Wealth Management, part of Geneva-based Pictet, remains neutral in its asset allocation stance towards global equities, pulled between cheer about better-than-predicted first-quarter 2019 earnings but waiting for a catalyst to justify higher market levels.

The Swiss firm is, however, particularly positive towards Chinese and Indian equities, it said in a monthly update on its investment views.

Low yields on major government bond markets means that Pictet is not changing its underweight position on this asset class, with the exception of US Treasuries, on which it is neutral. The firm is bullish, or overweight on local-currency emerging-market bonds, however, because it thinks they could do better than corporate bonds because the US dollar is losing some of its strength. (The rise in the dollar had previously hit local-currency bonds because the exchange rate had forced up repayments.)

“The Q1 reporting season helped support the upswing in developed-market stocks in April, helped by a substantial improvement in the earnings outlook. But valuations look demanding, underpinning our neutral stance,” Pictet said in its note. “Whereas healthcare stocks lagged, financials and tech shone during the Q1 earnings season in April, with tech stocks again trading at a considerable premium to the overall market. Sustainable earnings quality will be key to determining the way forward for individual sectors,” it said. 

“Emerging-market equities continued to lag their DM equivalents in April, and valuations are somewhat stretched. A neutral position in global EM continues to appear appropriate, although we remain favourably disposed towards the Indian and Chinese markets,” the firm continued. 

“In view of the evolving political situation in Spain and Italy, we remain underweight peripheral euro area bonds,” the firm said, regarding the recent Spanish elections and stronger showing for the socialist government there, and Italy’s continuing debt and banking sector worries.

Finally, Pictet smiled on Asia-focused hedge funds, arguing that the region is throwing up a number of price dislocations in different markets which these funds are traditionally adept at exploiting. “Local managers with a proven track record remain a focus of our attention,” the firm added.

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