Pictet Asset Management is cutting exposure to Japan and becoming increasingly bullish on the US as it believes monetary stimulus and vaccination programmes should prevent a sharp slowdown in global growth.
As part of its decision to reduce exposure to cyclical stocks, Luca Paolini, chief strategist at Pictet, said they have chosen to downgrade the view on Japan to underweight within the group’s multi asset range.
“The economy is facing a renewed surge in covid infections and a slow vaccination rate,” he said. “The Bank of Japan is also struggling to stimulate the economy in the face of sluggish private credit creation, which is current at its weakest level in nine years.”
In contrast, Pictet has upgraded its view on the US from underweight to neutral as Paolini said they have become more optimistic on the prospects for US stocks.
“The inflation debate taking place within the US Federal Reserve’s ranks has spilled out into the open, investors are still waiting for an indication of when the central bank will start to wind down its $120bn (£86.7bn, €101.6bn) monthly asset purchase programme,” he said.
“Yet, we believe the current bout of rising inflationary pressure is largely due to distortions in supply chains and demand for covid-sensitive items such as used cars, which add as much as 2.5 percentage points to the headline reading.”
As such, with the US economy growing comfortably above its long-term trend, monetary policy remaining supportive and bank lending standards at their loosest on record, Paolini said these encouraging signs were enough for the group to upgrade its stance on the US.
“Our neutral stance in the US along with an overweight position in Swiss equities, allow our portfolio to hold a greater number of quality stocks, which tend to perform well during this particular phase of a bull market cycle,” he said.
Not so sterling effort
Meanwhile, he noted concerns about slowing growth and a resurgence in covid infections have spurred a rally in global bonds. With long volatility and strong yields of 2.9%, he said Pictet views Chinese bonds as an attractive opportunity in this environment.
“We maintain our neutral stance on US Treasuries,” he said. “We are also neutral in all other major government and corporate bond markets, apart from Swiss bonds and US high yield, where we are underweight.”
In currency markets, he said the team is maintaining its neutral position across all major currencies except sterling, where they are underweight.
“We expect the UK to be the first among developed economies to have an inverted yield curve in this economic cycle – usually a warning sign for the economy,” he said.