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February 10, 2014updated 04 Apr 2017 2:31pm

Pictet: Bond rally to run out of steam

Pictet Asset Management's chief strategist, Luca Paolini, has said: "Stay overweight equities, bond rally to run out of steam."

By Patrick Brusnahan

Pictet Asset Management’s chief strategist, Luca Paolini, has said: "Stay overweight equities, bond rally to run out of steam."

The firm also said the New Year has begun with a reversal of the trends it saw in 2013. The momentum of growth remains strong and inflation remains ‘largely under control.’

A main point was that ‘investors can maintain a modest overweight in equities and some other riskier asset classes. While we expect developed market stocks to deliver moderate returns of 5 to 10 per cent in 2014, we consider any further weakness as a tactical opportunity to increase exposure.’

On the difference between markets, they added: "We think the pattern of emerging market equity underperformance vs developed markets, which has widened the discount on emerging-to-developed market stock to more than 30 per cent on a price-earnings basis, is now at odds with fundamentals."

On bonds, they said: "We retain our underweight stance on investment-grade bonds. The prospects for high-yield bonds look more appealing, particularly as high-yield bond issuers have worked hard to extend the maturity of their liabilities. We have trimmed the long duration stance in our bond portfolio but we still believe that the market’s view of the US interest rate trajectory remains overly hawkish."

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