Aligned with its views at the beginning of the year, Pictet Wealth Management (Pictet WM) remains cautious on equities for the second half of 2023.
Speaking at a media briefing attended by FSA, the Geneva-headquartered wealth manager said that now is not the time yet to invest in equities, especially in the US.
“In recent weeks, Japanese and US tech stocks have shone in a generally flaccid period for equities. Japanese stocks have been attracting foreign interest again, while US tech giants keep churning out positive earnings,” said Hugues Rialan, Asia chief investment officer and head of discretionary portfolio management at Pictet WM.
“But we continue to favour somewhat defensive sectors and markets and are underweight the US market, due to high valuations, margin pressure and a certain complacency.”
The wealth manager is also underweight global small-cap equities, which are more pressurised under credit tightening conditions compared with larger-cap companies.
This is particularly the case in the US, where more small-caps firms comprise regional banks and real estate firms.
Pictet WM is neutral in Europe and Asia, where banking issues are less acute than in the US and valuations are lower.
“Japanese equities in particular could be helped by the continued dovishness of the Bank of Japan and heightened foreign investor interest,” Rialan added.
Sector wise, Pictet favours capital-goods companies that are set to benefit from strong secular drivers such as the energy transition and the re-industrialisation of Western economies.
On the fixed income side, Pictet altered its overweight stance in emerging market corporate bonds in hard currency to neutral, as it believes the outperformance against developed market corporate bonds has dropped.
It prefers investment grade bonds in Europe and high-quality IG in Asia, where spread premiums over their US peers is now close to their long-term median.
Long-term US Treasuries also offer attractive yields and serve as protection in the case of an economic downturn, Rialan added.
Yet, the wealth manager believes investors should continue to adopt an active and selective approach to fixed income and remain underweight Japanese bonds because of a lack of yield.
That is also the case for euro periphery debt due to the recent narrowing of spreads and speculative high yield bonds because of the risk of higher defaults as funding conditions tighten, Rialan said.
