LONDON Oct 11 Swiss wealth manager Pictet said
on Tuesday that it was time to trim back on emerging market
equities following their red hot run this year and as a series
of political and financial market "potholes" loom ahead.
Luca Paolini, chief strategist at Pictet Asset Management,
said that although the global macroeconomic backdrop remained
benign, the more than 15 percent jump in EM stocks this year
meant it made sense to lock in some profits.
"Given that a series of political and market potholes is
likely to emerge over the coming months, we have decided to cut
our weighting on emerging market shares to neutral from
overweight," Paolini said in a note.
"Our change in stance also reflects the fact that we are a
little suspicious of Chinese economic data, which have exceeded
expectations over the summer after government fiscal stimulus
triggered explosive gains in the housing market."
He said they doubted Beijing would keep its foot on the
accelerator for the rest of the year, conscious that the recent
pick up owed much to "another great helping of debt".
Alongside emerging markets, Pictet also downgraded its
stance on global equities albeit retaining its 'overweight'
preference for Japanese equities.
In bonds, it said U.S. government bonds were a better bet
than euro zone sovereign debt and that it had also turned
negative on European credit in general.
"With the Fed apparently destined to hike interest rates in
December and the ECB still in monetary easing mode, it might
seem that European fixed income markets offer more attractive
investment opportunities than their US counterparts. In our
view, the opposite is true," Paolini said
The yield differential between U.S. 10-year Treasuries and
German Bunds was starkly at odds with economic reality, he
added, with Europe not only growing faster than the U.S., but
investors also underestimating the prospect of the European
Central Bank scaling down its huge stimulus programme next year.
It retained its overweight on UK equities but also its
underweight on UK government bonds.
"In terms of Gilts we are negative," Paolini said. "But we
have already seen a big move so we don't see a big reason to
"The pound at the current level is becoming interesting." he
added. "But you probably need to get to at least $1.20 to make
the case that the worst is over for sterling."
(Reporting by Marc Jones; Editing by Dominic Evans)