In the latest Barometer from Pictet Asset Management, Luca Paolini, Chief Strategist at Pictet Asset Management, assesses the merits of overweight positions in emerging markets stocks and bonds against a backdrop of strong global equity market performance.
Asset allocation: looks like Goldilocks
Investors are becoming less worried about a slowing US economy and inflation figures, but weakening employment data may still motivate the Fed to cut rates. We remain neutral across global equities, bonds and cash in the face of modest economic growth, widespread easing and continued geopolitical uncertainty – but still see tactical opportunities across regional stock markets, sectors, and fixed income. There are positive signs from the euro zone as sentiment indicators have been improving and domestic demand is poised to pick up. Japan’s economic outlook is mixed while the Chinese economy suffered a significant decline during the summer, following a 44% collapse in exports to the US.
Equities: faith in EM, Swiss stocks
EM stocks are poised to deliver attractive returns in the coming months and should deliver earnings growth of above 10 per cent both this year and next. We maintain our overweight stance across EM stocks and remain neutral on US equities while we wait for positive earnings forecasts to translate to manufacturing indicators.
Fixed income & currencies: too sanguine about inflation
Bonds are underpricing inflation risk, particularly in the US., as markets have become too complacent both about upward pressure on components of US core consumer price inflation and the possibility that Trump administration tariffs will have inflationary effects in the near term.
