In its overall global allocation, the firm is overweight on equities on the back of improving global economic momentum and sees further likely central bank monetary support moves benefitting equity markets.
Japan is the firm’s most favored market.
“In terms of our regional allocations, the case for investing in Japanese stocks has become even more compelling following Prime Minister Shinzo Abe’s decisive win. Valuations also look attractive, particularly in light of the recent improvement in corporate earnings,” said Luca Paolini, chief strategist.
Pictet’s views are in line with other asset management firms such as Eastspring, Schroders, Pinebridge and Neptune who are looking out for opportunities in Japan in 2015.
“Growth in Japan is picking up. Consumer spending is holding up particularly well. Prime Minister Shinzo Abe’s election victory has removed political uncertainty, which is positive for financial markets,” Paolini said.
The Bank of Japan’s fiscal strategy aims for a target of 2% inflation. Recently, however, the bank cuts its inflation forecast for fiscal 2015 due to the decline in oil prices.
China slowing
In regards to China, Pictet expects economic growth to remain weak in 2015, but sees an improvement next year.
“Chinese economic momentum remains weak, but should recover next year thanks mainly to accommodative central bank policies and an improving property market,” Paolini said.
In November, the People’s Bank of China in an unexpected move cut interest rates for the first time in two years. It cut the one-year benchmark lending rate by 40 basis points to 5.6% and reduced the one-year benchmark deposit rate by 25 bps to 2.75%.
China’s Premier Li Keqiang recently said at the World Economic Forum that the country will avoid a hard landing and the government is focussed on ensuring long-term sustainable growth using prudent monetary policy and proactive fiscal policy.
His comments came just after the announcement that China’s economy expanded 7.4% in 2014, compared to 7.7% in 2013. It was China’s lowest annual growth rate in 24 years.
Neutral on Europe
Pictet has turned neutral on Europe in the wake of Russia’s financial turmoil.
“Shifting Europe back to neutral from overweight reflects our belief that the region is the most exposed to the crisis brewing in Russia, which has been hit by a double whammy of falling oil prices and Western sanctions.”
If the rouble’s collapse plunges Russia deeper into recession, the ripple effects will be felt in the euro zone, which is its largest trading partner, the firm said.
