Pictet Asset Management has fully overweighted US Treasury bonds amid concerns the fund firm has about global growth and a trade war.
“Relatively attractive yields and the US market’s safe-haven status mean that we’ve lifted our stance on Treasury bonds to a full overweight,” said Luca Paolini, chief strategist at Pictet AM.
“Question marks” over global growth and “evaporating” central bank liquidity made the firm cautious about equities, he said and warned that “with plenty of dry tinder around, trade wars could prove the spark that starts the fire.”
The risk of a market correction is rising, according to Paolini.
The phasing out of economic stimulus by the European Central Bank at a time of political uncertainty in Italy made Eurozone fixed income assets look less appealing, although Pictet AM’s overall bond allocation has risen and the firm has reduced equities to underweight and turned more defensive on equity sectors.
It has cut Eurozone equities to neutral and raised Japan to a full overweight position at the same time as labelling US stocks as expensive.
“Overall, with the global economy losing steam, we’ve trimmed our exposure to economically-sensitive stocks and added to sectors that are best placed to weather a downturn.”
Meanwhile, BNP Paribas Asset Management said it remained bullish on equities, expected robust global growth, and that markets would be calmer in the coming months.
The firm’s multi-asset, quantitative and solutions (MAQs) team said they preferred Eurozone equities where there was positive earnings growth potential and room for margin expansion.
Appearing more comfortable with risk compared to counterparts at Pictet, the MAQs team said they had taken a long position on US Treasuries in relation to five-year bunds, but would increase exposure to emerging market bonds.
The second quarter of 2018 was “tainted” by trade tensions, investor concerns about Italy and European growth, the MAQs team said. There was also stress in emerging markets and China-linked assets.
However, the MAQs team also said that its positive view on risky assets continued for the quarter ahead.
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