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Perspectives Pictet

Perspectives Pictet

“Since 1805 Pictet has remained single-minded in its mission to advise private clients, families and institutions in the art of managing their wealth.” More than 200 years after it was founded, Pictet ranks as one of Switzerland’s leading private banks and is among the most respected asset management specialists in Continental Europe. Even though we now have a worldwide presence and a global perspective, we retain the characteristics that have helped our clients to prosper over two centuries.

Articles by Perspectives Pictet

Looking to the politicians, ‘Perspectives’, June-July 2017

3 days ago

Published: 24th May 2017Download issue:English /Français /Deutsch /Español /ItalianoWith the election of Emmanuel Macron as French president, the tide of populism may have been stemmed for the moment in western Europe. Has Europe’s political class found the formula for dealing with the phenomenon? “I wouldn’t bet my investment career on it,” answers Pictet Wealth Management’s (PWM) chief investment manager, Cesar Perez Ruiz, in the June-July issue of ‘Perspectives’. Signs of ‘peak populism’ should allow investors to focus on the improving growth environment—but none of the factors that gave rise to the populist explosion have gone away. “The next turn in the economic cycle could well tip the balance in a number of countries,” writes Perez Ruiz.The theme of the interaction between economics and politics is taken up PWM’s chief strategist, Christophe Donay. Having doused the flames of the financial crisis, central banks have begun to step away from expansionary monetary policies, which means, writes Donay, “there is now the tantalising possibility that economic policy will fill the void”. Donay argues that once the sugar rush provided by positive earnings surprises fades, “a further leg-up in risk assets may depend increasingly on fiscal and budgetary policy” and its success in putting the current cyclical recovery on a firmer footing.

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Monthly Investment Strategy Highlights, May 2017

18 days ago

Pictet Wealth Management’s latest positioning in fast-evolving markets. Asset AllocationMarkets are starting to revise their expectations for the Trump administration. We still see some prospect of a US fiscal stimulus, but it is likely to be later (not kicking in before 2018) and less ambitious than hoped.Improving economic performance and strong earnings growth support our positive stance on DM equities, despite high valuations. However, room for disappointment is limited.We expect core sovereign bond yields to rise as economic growth strengthens and inflation expectations pick up.Favourable economic fundamentals do not favour buying gold, but a call option on gold offers a way to hedge geopolitical risk.CurrenciesAlthough the US dollar’s up-cycle is mature, the greenback should remain strong in 2017.With hard Brexit still the most likely scenario and the UK economy starting to suffer, upside potential for sterling is likely limited.EquitiesEarnings growth has surprised positively and we see good momentum for 2018.Positive profit margin momentum in Europe supports our overweight in European equities.The strong performance of European equities also supports our view that it is better to play EM through DM.Fixed incomePeripheral euro area bond spreads could widen on anticipations of ECB tapering, as well as the approach of Italian elections in 2018.

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Where Do We Go From Here?

25 days ago

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Published: Tuesday May 02 2017Evidence that hard data is catching up on soft data continues to put wind in the sails of equity markets, which are also benefiting from strong earnings news. A revival of Trump’s tax plans could further help risk assets. But political and geopolitical risk has not entirely disappeared.  Cesar Perez Ruiz, Pictet Wealth Management’s Chief Investment Officer, discusses the road ahead.

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The Pictet Group Annual Review 31 December 2016

29 days ago

The Pictet Group is proud to present its Annual Review of activites for 2016, covering Pictet Wealth Management, Pictet Asset Management and Pictet Asset Services.We are pleased to introduce the Annual Review of the  Pictet Group for 2016 — my first as Senior Partner. After I assumed the role on 1 July  last year, I was asked if Pictet’s strategic direction would change. The Senior Partner is,  by tradition, chair and primus inter pares of  the board of partners, only assuming  the position after a decade or two as a partner.The thrust of our strategy is therefore  towards continuity, solidity and stability:  the conditions in which Pictet’s entrepreneurial spirit will thrive. These principles are  more vital than ever with so much corporate  activity in the asset and wealth man- agement sector.We are by no means immune  to the profound changes in the financial  industry, in society and in the wider world.  For example, automation and the digital revolution are changing how we commun- icate and work in ways that we could  hardly have imagined. But, underpinned by our long-held values, I have no doubt that we have the talent, resources and services to adapt, and to exploit the opportunities  ahead, to the enduring advantage of our clients.

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French elections: a Le Pen win would hit euro area periphery

April 18, 2017

While our central scenario discounts the possibility of Marine Le Pen becoming president, her presence in the second round of the presidential election is likely to create considerable nervousness for investors.Our main scenario, a win for a Europhile politician in the second round of the French presidential elections in May, could result in a small relief rally on markets. However, the National Front’s Marine Le Pen is seen as being one of the two candidates to go through from the first round next Sunday to the second round, causing unease on financial markets.Le Pen can probably only hope to win that second round if voter participation collapses. In the unlikely event that she does win, markets would be considerably shaken.On FX markets, the euro would likely fall by about 6% to 13% against the US dollar on a 1-month horizon, probably taking the EUR/USD below parity (barring a significant rise ahead of the elections).French equities are fully integrated in European stock markets (one-third of the Euro Stoxx and one-sixth of the Stoxx 600) and a Le Pen victory would create fears not just for France but for Europe as a whole. Short-term volatility levels are inflated, but investors have not hedged aggressively. As a result, depending on the extent of the currency move, a pull-back of between 5% and 15% is possible.

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Oil industry successfully reinvents itself again

April 12, 2017

Shale oil has forced the conventional oil industry to reinvent itself. Companies have nevertheless demonstrated terrific powers of adaptation, helped by the high-tech nature of the oil industry.In a ‘lower-for-longer price’ environment, there are still attractive themes and equity stories to play, assuming prices remain broadly above USD45-50 per barrel. Valuations generally remain reasonable, especially on the back of the correction since the start of the year. The growth theme is clearly the shale oil story, where both producers and services companies look well positioned—whatever the oil price, shale oil producers will remain the relative winners. Among ‘the rest’ of the oil sector, the large integrated oil majors look the most attractive investment opportunity, albeit not a growth category but more a yield story.The shale oil industry was hit hard by the price slump of the past two years, but the survivors have shifted downwards on the cost curve, thanks to efficiencies and technological progress. Over the long term, we expect further efficiencies to be realised. As a result, US shale output may rise by close to 1m barrels per day (b/d) over the next few years, enough to meet the bulk of global demand growth (1.3m b/d). Across the industry, most companies are positioning for ‘lower-for-longer’ oil prices.High-risk exploration is now a story of the past.

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Monthly Investment Strategy Highlights, April 2017

April 10, 2017

Pictet Wealth Management’s latest positioning in fast-evolving markets. Asset allocationThe first quarter was exceptionally strong for risk assets, and the outlook remains good for developed market (DM) equities.We remain comfortable with our overweight in developed market equities, but it would be wise not to take too much risk in the coming quarter.EM assets may offer attractive opportunities on a tactical basis.CurrenciesThe US dollar probably has only limited further upside, absent a major boost to economic growth.The Swiss franc looks set to retain its safe-haven role.EquitiesThe reflation trade is proving resilient, supported by a good earnings growth outlook.Valuations for DM equities are well above long-run averages and leave little room for disappointment.Fixed incomeWe continue to favour high yield within fixed income.US Treasuries remain important as a protection asset.AlternativesOur focus remains on opportunistic managers with a long volatility profile. At the portfolio level, we aim to keep a low beta to equities and credit.We expect private equity to continue to display attractive returns.

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When headlines start to matter

March 28, 2017

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Published: Tuesday March 28 2017Alexandre Tavazzi, Global Strategist at Pictet Wealth Management on factors that might hit market valuations.

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Time to deliver, ‘Perspectives’, March-April 2017

March 28, 2017

Published: 28th March 2017Download issue:With President Trump’s plans to ‘reform and repeal’ Obamacare suffering a serious setback in Congress in March, attention is once again turning to the new administration’s plans for tax cuts and fiscal reform. The so-called ‘reflationary trade’, while in large part based on improving economic dynamics, also owes something to expectations that the new US administration will push through with other parts of its economic agenda. This means, writes Pictet Wealth Management’s (PWM) chief investment officer, Cesar Perez Ruiz, in the March-April issue of ‘Perspectives’, that there is potential for an increase in volatility , “especially if there is less than meets the eyes” in Trump’s economic plans. And just as doubts emerge about fiscal stimulus, the Fed has embarked on fiscal stimulus. “This could be an uncomfortable mix for certain assets,”according to Perez Ruiz.But the CIO maintains his faith in risk assets, including equities, as hard economic data catches up with upbeat forward indicators and the climate for the global economy brightens. Two more rate hikes this year after the quarter-point rise in March will have an impact, but should not derail the US’s prospects, but PWM’s chief economist, Bernard Lambert, is convinced they “will only occur if economic growth is strong enough to support them”.

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Monthly Investment Strategy Highlights, March 2017

March 14, 2017

Pictet Wealth Management’s latest positioning in fast-evolving markets.Asset allocationWe remain comfortable with our overweight position in developed-market (DM) equities and believe there are good reasons to be positive on Japanese equities,With volatility low and risks looming in the short term, this is a good time to add protection to portfolios. We have bought derivative protection on EUR high yield bonds and a call option on gold.Expecting yields on core sovereign bonds to rise further this year, we sold our German Bund positions in EUR and CHF grids in March.Equities in DM are likely to offer superior returns and less volatility than emerging-market (EM) in 2017. However, EM assets may offer attractive opportunities on a tactical basis.CommoditiesOur core scenario does not favour buying gold at present. However, while gold contains a significant opportunity cost, call options constitute a relatively cheap way to build some protection against more extreme risks.EquitiesEarnings growth is the key component in our expected returns for equity markets. Expectations have risen through the reporting season for Q4 2016, and earnings growth looks robust for all markets.

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Returns will likely fall over the next decade

March 10, 2017

Published: 10th March 2017Download issue:The latest edition of Horizon is out, containing Pictet Wealth Management’s updated secular outlook and expected returns for the main asset classes over the next 10 years.Some of the highlights are as follows: Expected ReturnsEquities: below long-term average but still attractive. Our models suggest that global equities can be expected to post a 6% return in US dollars annually for the next 10 years. Such returns look attractive relative to long-term sovereign bonds, but are markedly lower than the 8.6% average long-term annual return of the S&P 500.Government bonds: the bonanza is over. It looks unlikely that bonds will post meaningful positive returns over the next few years. At best, according to our models, 10-year US sovereign bonds can be expected to return 1.2% on average per year over the next 10 years, while 10-year government bonds in the euro area, Switzerland and Japan will deliver negative returns.Corporate bonds: the hunt for yield continues. According to our in-house models, euro investment-grade (IG) corporate bonds can be expected to post positive returns of the order of 1.3% annually over the next 10 years, while US dollar IG returns will average 3.2%. USD high yield (HY) can be expected to post equity-like returns of 5.5% annually, compared with 3.5% for euro HY.

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Decline in expected returns for equities and bonds

March 8, 2017

The latest edition of Horizon is out, presenting Pictet Wealth Management’s expected returns for the main asset classes over the next 10 years. We believe that the returns that can be expected from developed-market equities over the next 10 years will be over a third lower than average of the past 46 years. Growth potential and inflation trends suggest that expected annual returns for US equities could decline to just over 5% over the next 10 years, compared with a historic 10-year average of about 7%, for example.Our main conclusion is that there is no such thing as a free lunch. Better returns require taking more risk. According to our calculations, private equity will provide the highest annual returns, but with the greatest volatility risk, while cash (especially Japanese cash) will provide little or no return in spite of low historical volatility.Some of our expectations for the main asset classes are presented in the bullet points below. In general, our conclusions are based on proprietary risk-return models combined with our internal economic forecasts. Our calculations and methodology are detailed asset class by asset class in Horizon.According to our expectations, global equities can be expected to post a 6% return in US dollars annually for the next 10 years, which is lower than the 8.6% average long-term annual return of the S&P 500.

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Monthly Investment Strategy Highlights, February 2017

February 16, 2017

Pictet Wealth Management’s positioning in fast-evolving markets.Asset allocationImproved earnings growth should support attractive returns on developed-market equities.We still expect Treasury yields to rise this year. The 35-year fall in long-term interest rates, during which government bonds provided both strong returns and protection, has probably ended. The protection that government bonds provide for portfolios is therefore set to come at a cost again.Volatility on equity markets is currently low, but tail events look underpriced. Although this stands to be a risk-on year, volatility could be sharply higher than in 2016. We shall continue to keep well diversified portfolios and look for smart ways to protect them.Developed-market (DM) equities are likely to offer superior returns and less volatility than emerging-market (EM) equivalents in 2017: strategically we still prefer to play EM through DM. However, EM assets may offer attractive opportunities on a tactical basis.CurrenciesThe US dollar (USD) lost momentum in January, in tandem with political and market developments and lack of details on the Trump administration’s fiscal plans.However, although maturing, we expect the USD’s long-term appreciation trend to continue this year, on the back of an improving US growth and inflation outlook as well as divergent monetary policy.

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A unique asset class which is here to stay

January 16, 2017

Published: Monday January 16 2017Klaus Hommels, founder of a leading European venture fund, explains his approach to investing in tech start-ups, the qualities he looks for in entrepreneurs and how he identifies new opportunities.As one of Europe’s leading business angels, Klaus Hommels has established a remarkable success record with investments in some of the largest European and worldwide internet start-ups. They include Skype, Facebook, Airbnb, King, QXL/Tradus, Xing and Spotify (where he is a board member). He has also been named European investor of the year by several organisations over the last ten years.Lakestar, the venture capital firm he founded, makes investments ranging in size from EUR500,000 to EUR50 million which gives him the utmost freedom in an inefficient asset class where assets are not accurately priced. What he looks for when making investments is the quality of the entrepreneurs.‘It’s the people who make the difference. Ideally, I want someone aged between 23 and 34 with a tech background, who has discovered a problem in daily life and is totally passionate about solving it with technology. Because it is difficult to be a lone wolf, I like there to be a co-founder to share the grief and the belief. And the product must be scalable for a bigger market and doable in a clear way.

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Superior returns from intelligent machines

January 12, 2017

Published: Thursday January 12 2017As technological advances and new business models drive strong growth in robotics, artificial intelligence and industrial automation, these sectors are becoming increasingly attractive to investors.Since its early days in the 1960s, robotics has marched steadily into the mainstream, and is now launching disruptive innovations which are permeating the business world and people’s daily lives. The development of artificial intelligence (AI), in particular, is moving robots on from replacing tasks previously carried out by humans into cognition that involves interaction with them.With impressive prospects for growth over the next few years, robotics is also becoming increasingly attractive to investors. One conservative estimate made by the Boston Consulting Group two years ago is that growth will average 10 per cent a year. A more recent forecast from Tractica, a market intelligence firm that focuses on human interaction with technology, anticipates 36 per cent annual growth over five years.Experts have different definitions of what robotics and artificial intelligence are about, but even the lower of these two growth assumptions means a rate of three to four times expectations of growth in the global economy.

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Robo-advisors in financial institutions

January 9, 2017

Published: Monday January 09 2017The development of deep learning AI programmes allows robots to emulate back-up staff in financial institutions, says leading computer scientist Qiang Yang – but they will not completely replace human decision-making.In many financial institutions, expert advisors rely on trading data, company reports and news stories to detect minute market signals and provide clients with investment recommendations. Their work is often supported by teams of interns who analyse corporate history, the competitive environment and market trends in detail.But developments in artificial intelligence (AI) could revolutionise this process, according to Professor Qiang Yang, by replacing those interns with robo-advisors which can replicate their abilities and surpass them in speed and accuracy. The AlphaGo deep learning programme beat the world’s best Go player in 2016 by developing a new generation of search algorithms which can be used to create learning systems able to emulate human capabilities.Prof Yang, who heads the computer science department at Hong Kong’s Science and Technology University, says that such programmes can analyse fundamental financial data going back 20 years. They can also read through mountains of documents and other forms of text, and reason about their contents to make predictions about market developments.

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Autonomous decision-making using AI

January 6, 2017

Published: Friday January 06 2017Antoine Blondeau, co-founder of a pioneering artificial intelligence company, believes that there are no limits on what can be achieved by scaling up and distributing AI on a truly vast scale.When Antoine Blondeau and three collaborators co-founded Sentient Technology in 2007, they had an ambitious vision. They wanted to help solve some of the world’s most complex problems by harnessing the world’s computer capacity to develop artificial intelligence on a vast scale. And they felt well-positioned to do so, having worked together on the AI technology behind Apple’s Siri, the intelligent personal assistant that helps people get things done.They also saw that the convergence of two important trends would allow them to achieve their aim. One was the availability of relatively low-cost massive computing power, while the other was new AI techniques which could be scaled up to create autonomous decision-making applications. Such a platform could improve business performance and enrich people’s lives.Sentient is developing its operations in businesses which involve interactions between customers and companies. In some of those, the company develops products for specific sectors and sells them in the market: one example is intelligent e-commerce, while another is in financial services decision-making.

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Artificial intelligence in wealth and asset management

January 3, 2017

Published: Tuesday January 03 2017Edgar van Tuyll van  Serooskerken, head of Quantitative Strategies at Pictet Wealth Management, explains how Pictet uses machine learning for two purposes: first, to hunt for profitable investment opportunities; and second, to search for patterns in big data that are similar to those of past periods.For the first use, machine learning can sift through the mass of data we now have on the past prices of assets in various classes, on company performance and on macro-economic developments, in order to look for hidden treasure. It will hunt for relationships between data points that could allow us to make returns and we study them with our experts to see if they make sense – we don’t just trust the machine and trade off them.Nonetheless, since 2013 we have come up with a whole series of automated strategies, which have beaten the hedge fund index by a wide margin. They tend to reflect human behaviour which doesn’t change very much and makes those strategies stable for long periods. For example, the herding effect which leads investors to want to be in with the crowd – buying stocks that have been rising for a long period, and selling them if they have been falling.Another example is that people tend to overestimate risks in the short term – for example, of China’s slowdown, the Brexit vote or the Italian referendum in 2016.

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Antonio Bicchi

December 31, 2016

Published: Saturday December 31 2016Robots used to be separated from people because of safety concerns, but Professor Antonio Bicchi of the Italian Institute of Technology and Pisa University believes that a new generation of lightweight, soft robots will safely interact with humans in everyday life.The robots that play an essential role in many industries today are rigid and heavy, their mechanical and electronic components programmed by humans to be very accurate in what they do. But as researchers have learnt more about how the human body performs complex tasks, the world of robotics is moving towards devices that operate more like humans – and can interact with them.According to Antonio Bicchi, Professor of Robotics at the University of Pisa in Italy and head of the SoftBots Lab at IIT, industrial robots will no longer have to be segregated in cages to protect people from injury. Instead, they will help humans on the production line, and also in services where they will be able to assist people such as the elderly and disabled by interacting with them. ‘There will be a change of paradigm,’ he says.‘We are moving from an age of information, which has deluged us with information through media such as smartphones and television, to an age of machines that can interact with people physically and intelligently.

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Andrew McAfee

December 29, 2016

Published: Thursday December 29 2016The MIT scientist, co-author of the bestselling book on The Second Machine Age, discusses the impact of digital technologies on work, the economy and society, and how human beings should adapt as the pace of change accelerates.What led you to set up the Initiative on the Digital Economy at MIT’s business school?My colleague Erik Brynjolfsson and I co-founded the Initiative because we felt that there was a need to study how technological progress was radically changing the business world, changing economies, changing societies. It needed a dedicated academic home where we could do research, host conversations and bring people together – work aimed at helping businesses understand how to navigate this important transition and harness the power of technology.What is the biggest challenge arising from the growth of the digital economy?It’s pretty clear that in most countries in the rich world, the middle class is under some pressure. In countries like the US and Switzerland, a large, stable, prosperous middle class was built from people doing routine jobs – both difficult jobs and cognitive jobs. But those jobs have gone because globalisation has moved some of them elsewhere and technological progress has displaced humans from others.

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The age of intelligent machines

December 28, 2016

Published: 28th December 2016Download issue:Humankind is moving from an information age to the age of intelligent machines, with consequences for the world of work, the economy and society. The transition is driven by the explosion in the amount of digital data that is now available, artificial intelligence (AI) programmes that can analyse the data for the benefit of humanity, and intelligent robots that are able to work independently.The Winter 2016 edition of Pictet Report includes a talk with the co-author of a best-selling book on the second machine age, who says these developments mean that machines are now able to beat human beings at their own game. As a result, they are acquiring astonishing capabilities in a range of activities previously in the realm of science fiction.Other entrepreneurs describe some of these activities they were working on. The abundance of new shipping data, for example, is providing real visibility on what is happening at sea – including illicit activities. New AI programmes are analysing huge amounts of financial data and documents to help make investment decisions for wealth and asset managers. And robotic book scanners that digitise printed books are using AI to access human knowledge previously locked up in handwritten documents.

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The Family Consilium 2016

November 30, 2016

Published: 30th November 2016Download issue:This Chronicle presents the highlights from The Family Consilium held in Gstaad in June 2016. Topics covered include: emerging disruptions in geopolitics, disruptive forces in technology, how investors might respond to the changing financial environment, and strategies to manage the challenges of passing wealth from one generation to the next. Other highlights are Elif Shafak, Turkey’s most-read female author, on the growing political opposition to liberal democracy around the world and what it means for women, and cultural commentator Lucy Johnston on the latest technologies and innovations—including drones and virtual reality devices. We hope that you find this edition of Chronicle enlightening and inspiring, and that you will distribute it to your network of clients and contacts.

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Into the Unknown

November 11, 2016

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Published: Friday November 11 2016The switch from monetary to fiscal stimulus, and a rise in earnings growth for the first time in two years looked like being two of the big themes for 2017. To these must now be added a third one: the unpredictability of a president Trump.  Cesar Perez Ruiz, Pictet’s Chief Investment Officer, discusses the road ahead.

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Implications of Trump’s election win

November 9, 2016

We are cautious about the impact of a Trump presidency and are not changing our economic forecasts at this time. Uncertainty about how Trump will govern make near-term volatility spikes likely.A Trump presidency could see major changes in policy on many themes such as fiscal policy, trade policy, immigration, the environment, financial regulation, healthcare, social security, and supervision of the Fed. However, it remains highly uncertain whether Trump will in fact pursue the policies he aired during the campaign.On fiscal policy, Trump has made proposals that would boost government spending in general, and expenditure on infrastructure in particular. We could see a meaningful fiscal stimulus, equivalent to 0.5 to 1.0 percentage points of GDP over 2017-18. But it remains to be seen whether Trump will pursue these policies, and whether Congress would accept them. It is still far from certain that Congress will accept policies that raised the federal debt substantially.Trump has promised a tougher stance on trade policy. He opposes the Trans-Pacific Partnership and favours renegotiating the North American Free Trade Agreement. However, president Trump could yet prove much more moderate than candidate Trump in this area. Indeed, Trump stressed co-operation with other countries in his acceptance speech.

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Time is ripe for change in monetary policy style

November 7, 2016

Published: 7th November 2016Download issue:In spite of large doses of policy easing, inflation and global growth remain tepid. With the effectiveness of existing monetary policy styles therefore being increasingly questioned, the November 2016 issue of Perspectives looks at three of the most plausible alternatives.One is asset-price targeting. Could central banks assume responsibility for ensuring the stability of asset prices as well as price stability? Christophe Donay, head asset of asset allocation and macro research thinks this style raises too many questions and therefore “is not quite ready” to become the next monetary policy ‘style’. An alternative calls for central banks to target nominal GDP. This style would involve central banks running pro-active policies to maximize GDP growth, while at the same time keeping volatility as low as possible.  Flexible inflation targeting, a third alternative policy ‘style’, seems to be gaining headway in central bank circles. Indeed, with the IMF drawing attention to its potential to tackle low growth, flexible inflation targeting “stands the best chance of becoming the template for future monetary policy”, according to Donay, in spite of the risk of disrupting natural market mechanisms.More generally, there is a need for monetary policy to work in tandem with budget policy to be fully effective.

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The Next Generation

November 1, 2016

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Published: Tuesday November 01 2016The third Next Generation event took place in Geneva with 50 Next Gens in attendance from 22 different nationalities.The event was a great success, focusing both on the challenges and solutions the rising generation face in todays complex environment. Presentations offered both solid educational platforms and fostered lively workshops, providing a unique opportunity for like-minded peers to exchange opinions and advice. Among Pictet expert speakers, we had the pleasure of welcoming, Kathryn McCarthy, Advisor to Families and Family Offices; Myriam Vander Elst, Vice President of Development Europe, Epic Foundation; and Ann Makosinski, Serial Inventor.

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Weekly View, 18 October 2016

October 18, 2016

Weekly View Pictet Wealth Management’s near-term view on the economy and financial markets18 October 2016.Last week saw profit-taking on equity markets. Chinese export data unsettled Asian markets (the MSCI Asia ex-Japan fell 2.4% in local currency), but had no notable effect on developed markets (the S&P500 lost 1% in local currency while the Stoxx 600 edged up 0.1%). Cyclicals did better than defensives.A turnaround in earnings growth forecasts following several disappointing years could favour value and cyclicals at the expense of defensives. We are watching Q3 earnings results closely for confirmation of such a turnaround.Sovereign yield curves steepened across developed markets last week. US 10-year Treasury yields reached 1.8% on Friday, in a belated reaction to rising wage growth. UK 10-year Gilts rose by around 13bp because a weaker sterling will push up inflation. German Bund yields left negative territory owing to ECB tapering talk. But we think that a lack of momentum in economic growth will limit the extent of the rise.Yields on investment-grade corporate bonds rose last week, following government bond yields. High yield bonds fared better due to improvements in the oil sector (for US high yield) and the financial sector (euro high yield). US high yield default rates have dipped to 5.4%, but we think they will rise again (Moody’s baseline is to 6%).

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In Conversation With Sally Osberg

October 12, 2016

[embedded content] Published: Wednesday October 12 2016Sally Osberg, who has lead the Skoll Foundation since its creation in year 2000, spoke to an audiance of 80 entrepreneurs and investors at The Pictet Entrepreneur Summit Seminar held in Geneva in September 2016.Sally said that to be successful, a social entrepreneur has to really understand the system that creates the problem – the actors and the forces – in order to intervene at a high leverage point.In this conversation, she explains the approach taken by the Skoll Foundation and how they work with social entrepreneurs.

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Gauging the economic plans of U.S. presidential candidates

October 11, 2016

Published: 11th October 2016Download issue:Both main candidates in the US presidential election have outlined their plans in numerous areas. Whoever wins, both are promising to raise government spending, especially on infrastructure. Writing in the October issue of Perspectives, Pictet Wealth Management’s chief economist Bernard Lambert outlines various scenarios. Should Hilary Clinton win the presidency but the Democrats fail to win a majority in the House of Representatives in congressional elections, “the additional fiscal stimulus should be modest”, boosting GDP by 0.2-0.4% in 2017-2018. But if Donald Trump wins and the Republicans maintain control of both houses of Congress, “we could see a much more meaningful boost”, adding 0.5-1.0% to GDP in the same period, according to Lambert.Not all the presidential candidates’ policies are growth friendly. Both main candidates have promised a tougher stance on trade policy and Lambert believes there is a clear “risk of a marked increase in trade protectionism whoever wins”. Pictet’s chief economist believes the Trans Pacific Partnership is unlikely to be ratified by Congress, that Transatlantic Trade and Investment Partnership negotiations will be curtailed, and that “we will likely see some increase in import barriers”. Particularly forceful protectionist measures are likely if Trump is elected.

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