With markets continuing a remarkable trend higher and global growth figures holding positive, Paolini warns there are troubles brewing and investors should be wary in order to avoid disappointment.
He claimed the equities rally is losing steam and economic growth has plateaued with central banks preparing to wind down monetary stimulus measures.
“The onus is now on equities to justify their strong performance after a spectacular run, with suitably strong earnings numbers. Expectations are running high, particularly in the US in turn raising the risk of disappointment,” he said.
“The consensus view on US earnings implies real GDP growth in excess of 3 per cent – which has not been seen in over a decade. This is in stark contrast with economic realities.”
From this, Paolini explains he is neutral on equities and underweight in bonds at the moment, but he sees some opportunity in European stocks and US Treasuries.
He added Pictet have trimmed exposure to cyclicals owing to what they see as a deterioration in global growth with telecomes, energy and financials offering the best value in their view.
Paolini added: “Both Europe and Japan are favoured over the US, with economic and earnings cycles converging.
“Prospects for eurozone equities look particularly bright thanks to improving economic prospects; we also like UK equities – they offer a sizeable dividend yield while the market’s multi-national constituents earnings should draw some support from a weak pound.”
