The firm has been building its position in energy stocks, in line with its positive view on oil prices, according to Luca Paolini, chief strategist.
“Similarly, we also like materials, financials and industrials. We maintain a pro-cyclical bias as global growth is expected to improve.”
Japan neutrality
Turning to geographies, Pictet remains neutral on Japan in the short-term, but positive in the medium-term, Paolini said.
Current valuations seem reasonable, but the Japanese economy seems to be stalling.
“While the Bank of Japan has indicated that it would add to its massive stimulus programme, the timing is still unclear. In addition, the third arrow of structural reforms that forms part of Prime Minister Shinzo Abe’s progrowth plan has so far failed to deliver the expected results.”
“In spite of this, the case for Japan is positive over the medium term thanks to the combination of a weaker yen, improving corporate governance and prospects for an institutional rotation into stocks. Thus, we await a catalyst to turn tactically more positive.”
Pictet has also trimmed its exposure to emerging markets “following strong outperformance versus developed markets since March”, he said.
“We remain positive in the medium term because emerging economies are likely to recover as global activity picks up.”
“We continue to favour emerging hard currency and corporate debt, which are attractive as investors intensify their search for yield in an environment of low interest rates and volatility.”
Developed market tweaks
In Europe, Pictet has increased its equity position to neutral.
“Weak economic data increases the chance that the European Central Bank will embark on more monetary policy stimulus over the coming months to re-ignite the recovery.”
However, the weighting in US equities has been reduced.
“US fundamentals remain solid, but momentum is beginning to weaken,” Paolini said.
“Stocks have rallied to all time-highs following strong GDP growth in Q2, and valuations are beginning to look rich. An eventual rise in US interest rates, after the Fed wraps up its bond buying programme later this year, is another negative that hangs over US stocks.”
