House View, December 2017

Pictet Wealth Management’s latest positioning in fast-evolving markets.

Asset allocation

  • Economic and earnings growth continue to offer good momentum and the possibility of upside surprises for 2018, so we remain overweight DM equities.
  • However, uncertainties over other key aspects of the outlook mean that investors may be unwise to lower their defences. We are keeping tail risk mitigation in portfolios.
  • EM equities should continue to perform in 2018, but the leadership could shift from growth to value stocks. We continue to see selective opportunities in local-and hard-currency emerging-market debt.
  • Declining intra-index correlations, rising volatility and a continued rise in disruptive M&A will favour active management and stock-picking in 2018.


  • While a temporary surge in oil prices is possible on geopolitical risk, we see limited upward pressure based on fundamentals. We estimate an equilibrium price over the next 12 months of USD55-58 per barrel for WTI, close to current levels.


  • We remain generally bullish on euro area and Japanese equities. We are less bullish on richly valued US equities, although that would change if there were positive surprises on tax reform.
  • We favour value over growth stocks for 2018. Cyclicals need accelerating growth to keep outperforming.
  • We are neutral on tech stocks. But while some high-profile tech stocks with an earnings deficit look overbought, good cash generation means we do not expect a tech bust.


  • We see limited further downside for the EUR against the USD. We continue to expect a gradual weakening of the dollar in 2018, and estimate an EUR/USD rate of 1.24 for end-2018.

Fixed Income

  • US 10-year Treasuries should yield around 2.6% by end-2018, up from around 2.4% in mid-December 2017. Our end-2018 target for 10-year German Bunds is 0.9%.
  • As we expect yields to rise, we would stay underweight core sovereign bonds and short duration.
  • As interest rates could rise gradually, we prefer quality in credit (investment grade). We are cautious on US high-yield, given tight spreads and the potential for default rates to rise.


  • Our outlook for hedge funds remains positive, as monetary and political developments should work in favour of most strategies. We especially like long/short equity, relative value and merger arbitrage strategies.
  • We expect private equity to keep its illiquidity premium to public equities, and despite high prices, we continue to see opportunities.
  • Uncertainty and high valuations pose challenges for real estate in 2018. However, niche opportunities are set to remain in vogue.

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