Pictet Asset Management has raised its exposure to equities in light of the US Federal Reserve’s interest rate hike.
The firm’s chief strategist, Luca Paolini, says higher rates will not prevent stocks from moving higher in the coming months.
Paolini says the Fed’s insistence that it will tighten the monetary reins gently, along with the growing prospect of additional stimulus elsewhere, “have encouraged us to raise our exposure to equities”.
Pictet’s move is also a response to a recent fall in stock valuations and what the firm sees as an “excessive decline” in market expectations for corporate profit growth next year.
Higher interest rates and slowing economic momentum will make conditions more challenging for US companies to outperform their peers elsewhere in the developed world, says Paolini, so Pictet prefers Eurozone and Japan equities because these stocks are relatively inexpensive and “exceptionally supportive” monetary policies are set to continue.
“In the Eurozone, a combination of accommodative monetary policy and economic resilience are creating the backdrop for profits to recover, with the weak euro and low oil price acting as strong tailwinds boosting exports and household spending power,” Paolini says.
Valuations for European stocks are also the most attractive among developed markets, both compared to bonds and on the basis of normalised corporate earnings.
Also, Eurozone equities are trading at their lowest ever level relative to their US peers in US dollar terms, Paolini adds.
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