House View, May 2019
Pictet Wealth Management's latest positioning across asset classes and investment themes.
- There were no changes to our asset allocation in April. While we are encouraged by better-than-expected Q1 earnings and some improvement in earnings expectations, we remain neutral on global equities as we await new catalysts to justify current valuations. At the same time, we have a positive view of Chinese and Indian equities.
- We remain underweight government bonds given low yields, except US Treasuries, on which we are neutral. By contrast, we remain overweight local-currency emerging-market bonds, believing that they could outperform corporate credit as recent US dollar strength wanes.
- In general, we recognise that central banks’ support and an improvement in economic momentum could help prolong the current risk rally, although there are hints, in IPOs and alternatives, of ‘exuberance’ here and there.
- Current tensions around Iran means that a spike toward USD80–90 in Brent oil prices cannot be excluded. But we think that an oil glut could begin to become an issue toward year’s end, when increased export capacity for US shale oil appears. Our central scenario for Brent is USD70 per barrel at end-2019.
- In spite of residual US dollar strength, we remain upbeat on prospects for the yen and euro against the greenback as the year progresses. The yen remains extremely undervalued but, like the euro, should benefit from fading growth and interest rate differentials relative to the US dollar.
- The Q1 reporting season helped support the upswing in developed-market (DM) stocks in April, helped by a substantial improvement in the earnings outlook. But valuations look demanding, underpinning our neutral stance.
- 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.
- Emerging-market (EM) 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.
- In view of the evolving political situation in Spain and Italy, we remain underweight peripheral euro area bonds.
- We remain neutral EM corporate credits (in hard currency) but believe the recent decline in spreads is justified by improvements in fundamentals. We are underweight DM credits (except euro investment-grade paper, where we are neutral).
- Asia is appearing as an important venue for hedge fund managers. The region presents an interesting array of asset price dislocations and volatility when compared with western markets. Local managers with a proven track record remain a focus of our attention.