Pictet Asset Management has upgraded its equity position to an overweight stance following the recent global sell-off.
Despite a gloomy start to the year, which has seen economic growth disappoint, covid cases spike and stocks and bonds sell off sharply; Luca Paolini, chief strategist at Pictet, believes, in the short term at least, the world economy and equity markets may be through the worst.
“Taking advantage of attractive valuations, we have chosen to upgrade equities to overweight on a tactical basis, conditional on the speed of US monetary tightening and on a successful resolution of the crisis in Ukraine,” said Paolini.
After enduring a challenging 2021, Paolini also expects better fortunes for Chinese equities as the country has just entered the Year of the Tiger.
“The volume of credit flowing into the economy as a proportion of GDP is increasing, which tends to precede an increase in economic growth,” he said “Meanwhile, the People’s Bank of China (PBoC) has shifted its monetary policy stance decisively to easing, supporting the economy with reductions in both official and loan reference rates.”
Another boost, he added, is that the regulatory clampdown which took place last year on China’s most powerful corporations, which wiped out billions of dollars in value, appears to have paused for now.
“So, Chinese equities could recoup last year’s declines and narrow the valuation gap with their counterparts in the coming months,” he said.
Given Chinese stocks could also work as an effective hedge if the Russia-Ukraine crisis escalates into a full-blown military conflict, Paolini said Pictet has subsequently upgraded Chinese stocks from a neutral stance to positive.
“We are also more optimistic on the prospects for emerging markets more generally,” he added. “We expect emerging market companies to deliver earnings growth of more than 15% in 2022, above the global average and more than twice the consensus view.”
“We do, however, need confirmation on disinflation, stabilisation or improvement in earnings revisions and more clarity on the Ukraine crisis before we move to overweight,” he added.