LONDON (Reuters) - - Emerging debt is the top 2013 pick for BNP Paribas Investment Partners, which is cautious on all other asset classes including equities, citing policy uncertainty in the United States and Europe, CIO William de Vijlder said on Monday.
De Vijlder, who oversees 500 billion euros, said he was overweight emerging debt, and sovereign and corporate debt, but neutral on global equities, where gains could be limited by the U.S. fiscal cliff and the euro debt crisis among other factors.
"2013 is going to be a very challenging year ... an environment where policy impulses will be largely neutral or at least will not provide the fireworks we have seen in 2012 on the monetary side," de Vijlder told the Reuters Global Investment Outlook Summit.
He was referring to waves of money printing and cheap credit from developed economies' central banks, culminating in the U.S. Federal Reserve's $40-billion-a month open-ended money printing plan that commenced in September.
"There were lots of interesting things in Santa's sack this year ... we have seen all that and the question is: what now?"
De Vijlder noted that Western central banks' money printing had benefited risky assets such as emerging market assets. Emerging debt in particular has been among the top-performers of 2012, returning 13-16 percent in dollar terms.
"Emerging debt still has spread narrowing potential. There has been massive narrowing of spreads but it's not over," de Vijlder said, referring to the yield premium emerging debt pays over underlying U.S. Treasuries.
He acknowledged that emerging bonds had been the asset class of choice for investors but saw the sector remaining supported by its relatively high yields and largely prudent policymaking in the developing world.
"If you buy into the balance sheet quality and policy stance ... I don't see endogenous sources of collapse."
De Vijlder remains neutral on equities, especially after world stocks' rally of around 10 percent this year. He is underweight emerging equities, citing the slowing growth across the developing world.
"Can you see 15 percent on equities? Yes, but it's a conditional forecast," de Vijlder told the summit, held at the Reuters office in London.
He said markets would rally if debt-ridden Spain asked international lenders for aid or if the United States came up with a feasible deficit-cutting plan once the fiscal cliff issue was dealt with.
"It's going to be a year of going into the market to catch the upmoves," he said.
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(Additional reporting by Alice Baghdjian; Editing by Susan Fenton)