Wealth Strategies

Pictet Raises Equities Exposure, Cuts Cash

Editorial Staff 6 February 2024

Pictet Raises Equities Exposure, Cuts Cash

The Swiss firm says conditions – at least in the coming weeks – bode well for a blend of higher equity exposure. Consequently, it has moved from a more cautious stance but further out, it predicts slowing growth will be positive for bonds.

Pictet Asset Management has taken a bullish turn towards equities, raising its exposure to “overweight.” It has cut cash to “underweight,” arguing that slowing inflation and resilient growth suggest that the world economy can avoid a “hard landing”. 

The organisation, part of Geneva-headquartered Pictet, said that as along as such a “Goldilocks” story – moderating inflation and economic growth – holds, this bodes well for riskier assets. 

The firm retained its neutral position on bonds. 

“We view this allocation shift as a short-term move. Much like Goldilocks’s porridge won’t stay the perfect temperature for ever, we believe the global economy will eventually start to cool and bonds will regain the upper hand over equities,” the firm said in a note. 

Dozens of wealth and asset managers have set out their 2024 asset allocation views. A common theme appears to be an expected global economic slowdown and possible rate cuts during the year. A number of firms, such as Northern Trust Asset Management, say that parts of the bond market offer value. In view of that case, Chicago-headquartered group, is building out its fixed income capabilities. 

Pictet AM said its global leading indicator of business activity points to a “likely slowdown going into the second half of the year” and it predicts growth in developed economies to total just 0.9 per cent for 2024 – roughly half the pace of 2023.

According to Pictet AM’s macroeconomic model, Japan remains the only developed market with a positive score, benefiting from strong wage growth and  a potential rebound in global trade.

“The US economy is also holding up relatively well so far, which should boost its equity market in the near term. But survey data is increasingly gloomy, and we expect dynamics in the consumer sector and non-residential investment to deteriorate soon, prompting the US Federal Reserve to cut rates,” it said. 

The firm said eurozone growth will be “anaemic."

The firm said it particularly likes UK government bonds in valuation terms and it has upgraded them an overweight position, from neutral. “The bonds are relatively cheap, not least because we consider the recent upward surprises in UK inflation numbers to be transient,” it said.

“We expect [UK] inflation to start falling again in response to weakness in the economy. This is already being reflected in softening inflation expectations. Easing price pressures will, in turn, give the Bank of England the room to start its easing cycle and cut rates before any other of the developed world’s major central banks,” it continued.

Pictet AM remains overweight US Treasury bonds; it predicts their yields will drop another 20 basis points by the end of 2024. “At the moment, there’s too much optimism about how fast and deeply the Fed will cut interest rates this year, but at some point later in 2024 we expect the turn in the interest rate cycle to give US government debt a further fillip.”

The Pictet note came out after US non-farm payrolls for January rose 353,000, handily beating analysts’ forecasts and denting expectations of a rate cut by the US Federal Reserve in the next few months. 

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