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Perspectives Pictet

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Articles by Perspectives Pictet

House View, January 2020

10 days ago

Asset Allocation
Our asset allocation is dominated by a wish to stay diversified in a fragile environment. Continued ‘noise’ around trade is likely to leave markets alternating between disappointment and hope. With this in mind, we have a neutral stance on government bonds and developed-market equities alike, although we still see select opportunities in equities and appreciate the protective function of safe-haven bonds. Geopolitical events such as the tensions between the US and Iran will lead to volatility, which can be exploited tactically. Potential spikes in volatility also mean we have a positive stance on gold.
We also favour illiquid assets to mitigate volatility and boost returns in a low-return environment. As equities’ 2019 performance is unlikely

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ECB: Preview of the review

December 14, 2019

We see the ECB remaining on hold throughout next year although we believe it could tweak some of the technical parameters of its toolkit.

The first press conference of any new ECB President is an event in itself, and this time will be no different. Christine Lagarde’s debut  this week will understandably attract a lot of attention as the media and market participants scrutinise both form and substance. Indeed, the ECB’s ‘transition’ goes beyond the change in leadership as the central bank is facing a deluge of challenges, from risks to the economic outlook to the side-effects of its policies and from internal dissensions to external political pressure.
The timing could not be better for President Christine Lagarde to launch a comprehensive review of the central

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Upward pressure on equity volatility mitigated by fund flows

December 7, 2019

Whereas inflation is expected to be dormant next year, our expectation of real GDP growth of just 1.3% in the US in 2020 could put upward pressure on equity volatility. Since monetary policy tends to lead volatility by two and a half years, the Fed’s turn toward quantitative tightening in 2017 is also continuing to exert upward pressure on volatility levels for now.
But there are also countervailing forces at work. Although there is not a perfect correlation, decreasing margins tend to translate into higher volatility. As we outline in our 2020 outlook for equities, we expect margins to remain elevated in 2020, as wage increases are offset by benign raw material prices. Volatility also increases when consensus dispersion on future earnings is high. Consensus

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Core sovereign bonds 2020 Outlook

December 6, 2019

Neutral US Treasuries. We expect the US 10-year yield to fall towards 1.3% in H1 as US growth falters and the US Federal Reserve starts signalling additional rate cuts. However, continued monetary easing and election promises (i.e. fiscal stimulus) could boost inflation expectations in H2, with the 10-year yield ending 2020 at around 1.6% in our central scenario. Overall, we expect a positive single-digit total return for 10-year Treasuries next year and a steepening of the yield curve.
Underweight core euro sovereign bonds. We expect the 10-year German Bund yield to remain negative in 2020, although our central scenario sees it ending next year slightly heigher (-0.2% compared with -0.36% currently). European Central Bank (ECB) rate expectations have recently

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Euro Area 2020 Macro Outlook

November 29, 2019

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After an estimated 1.2% in 2019, we expect GDP growth of 1.0% in the euro area in 2020. Country wise, we expect more manufacturing-intense countries to underperform more domestically driven ones. Thus, we project weak growth of 0.7% in Germany and 0.4% in Italy in 2020, while we expect France and Spain to remain relatively resilient, growing by 1.2% and 1.7%, respectively.
Domestic demand, particularly household consumption, is expected to remain the main growth driver next year. Ongoing job creation, combined with rising wages, should continue to underpin household spending. Credit conditions should remain supportive of business investment and construction. Favourable bank-lending conditions and fiscal policy should also support momentum in consumer

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Currencies: do it with style

November 25, 2019

Our scenario of ongoing global growth moderation and elevated political uncertainties should, we believe, support defensive currencies. We consider a currency ‘defensive’ if it is likely to remain resilient should global risk appetite falter.
Among major currencies, the US dollar, the Japanese yen and the Swiss franc are usually considered as defensive. Indeed, the structural current account surplus and large net foreign assets of both Japan and Switzerland make them less vulnerable during periods of low risk appetite. By contrast, the defensive nature of the US dollar mostly stems from its wide international usage and its link to the world’s most liquid safe haven: US Treasury bonds. Overall, defensive currencies are very close to a safe haven and therefore

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Perspectives Pictet

September 23, 2019

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House View, September 2019

September 6, 2019

Pictet Wealth Management’s latest positioning across asset classes and investment themes.Asset allocationWe remain underweight global equities, but continued stimulus and an economic backdrop that is not catastrophic mean this is nuanced by neutral positions in some regions. We favour stocks of companies that have pricing power as well as those showing healthy dividend growth and low leverage.We are neutral US Treasuries as a way to protect portfolios, but underweight negative-yielding European and Japanese bonds. We remain cautious about ongoing yield compression, preferring to focus on quality and to limit duration. We are underweight US high yield, where leverage is high and default levels have been creeping up.The opportunity cost of holding gold, on which we remain neutral, although

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The era of economic slowbalisation

August 26, 2019

Download issue:Sisyphus was punished by the gods by having to repeatedly roll a boulder up a hill after it rolled back down each time he reached the summit. Today, markets are subjecting the world’s central bankers to the same punishment. According to César Pérez Ruiz, PWM’s Head of Investments & CIO, “each time central banks attempt to normalise monetary policy, the ‘market gods’ compel them to revert to easing mode and lower rates. The result is we are living in an era of economic slowbalisation.”Today, “the global economy is flying on one engine, with manufacturing in recession and services keeping the economy airborne. Populism-driven fiscal stimulus is keeping services afloat for now and central banks are doing everything possible to support their economies. He concludes that he

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Exceptional Swiss hospitality and haute cuisine

August 8, 2019

This independently managed, family-owned hotel in the City of Basel attracts guests from all over the world for its luxurious accommodation, its superb restaurant with three Michelin stars, and its talented staff team offering superior serviceThe Grand Hotel Les Trois Rois, which sits on the Rhine in the historic centre of Basel, is one of the oldest city hotels in Europe. The first record of The Three Kings dates back to 1681 when it was described as an inn for gentlemen. Rebuilt in 1844 in Belle Époque style, it was redesignated as a Grand Hotel, and began to attract distinguished guests from the worlds of politics and the arts.Over the next 160 years, Les Trois Rois was run by a succession of owners, some of whom sold off parts of the building. In 1936, its owners started to appoint

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House View, August 2019

August 5, 2019

Pictet Wealth Management’s latest positioning across asset classes and investment themes.Asset allocationWhile dovish central banks have resulted in an impressive ‘everything rally’ this year, we now need to see an improvement in fundamentals, as 12-month forward earnings for global equities are still 2% below their highs of October 2018. We therefore remain generally cautious on equities, waiting for a correction before we increase exposure.Trading volumes have declined and market gains are narrowly concentrated. However, we continue to see opportunities in some high-quality cyclical sectors such as industrials. Selection is paramount.As more developed-market yields turn negative, we are upbeat on local-currency emerging-market debt. Deleveraging could also spell opportunities in EM

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Uncertainty mounts over Mexico’s direction

July 12, 2019

The resignation of the Mexican finance minister raises further questions over prospects for Mexican assets.Carlos Urzúa, the Mexican Finance Minister, unexpectedly quit on Tuesday. His resignation, announced in a letter in which he set out the “many” disputes he had had with the administration of president Andrés Manuel López Obrador (AMLO), is meaningful from several standpoints. A respected official, Urzúa was seen by financial markets as a moderate, whose commitment to fiscal prudence reassured investors struggling to decipher AMLO’s economic north star. His departure also reveals profound tensions within the government between those aiming for ideology-led policies – which Urzúa denounced – and those advocating orthodox economic policies.Arturo Herrera, the current Deputy Finance

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House View, July 2019

July 5, 2019

Pictet Wealth Management’s latest positioning across asset classes and investment themes.Asset allocationAlthough the US-China ‘trade truce’ and dovish central banks are giving a short-term fillip to equities, our analysis suggests that expansion of valuations from here is limited, making us globally cautious on equities. But we see opportunities in high-quality stocks in individual sectorsWe remain underweight government bonds given low yields, except US Treasuries, on which we are neutral. We have moved from an underweight to neutral stance on euro high yield in recognition of ECB support, including a possible resumption of bond buying.A resilient US economy, low inflation, limited downward pressure on the dollar and a lessening of trade tensions after the G20 summit mean we are neutral

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House View, June 2019

June 6, 2019

Pictet Wealth Management’s latest positioning across asset classes and investment themesAsset allocationWe have turned tactically underweight on global equites, including US equities, given elevated valuations, mixed economic data and rising trade tensions. We remain neutral on euro area equities, where valuations are generally more reasonable than in the US. We have also moved from an overweight to neutral stance on Asian emerging-market equities.At the same time as we remain focused on quality companies rather than on speculative plays, portfolios are partially hedged against the risk of further equity market consolidation.We remain underweight government bonds given low yields, except US Treasuries, on which we are neutral. We have shifted from an underweight stance on top-rated

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Swiss start-up grows diamonds of exceptional purity

May 20, 2019

Physicist Pascal Gallo co-founded a company in partnership with Lausanne’s Federal Institute of Technology to create ultra-pure lab-grown diamonds for demanding high-tech applications, longer lasting watches and high-quality jewelleryThe reason for developing the lab-grown diamonds was a search for ultra-pure stones that could enhance the power of energy trans­mission using lasers. Diamonds have extraordinary properties: they are the best conductors of heat which means they can create intense laser beams without overheating. Research scientist Pascal Gallo and Professor Eli Kapon of the Swiss Federal Institute of Technology (EPFL) found that using diamonds in lasers broke the world record for laser energy transmission.The two colleagues patented their discovery, and wanted to start up a

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A premium mode of transport for urban commuters

May 15, 2019

Technological innovations offer a Swiss solution to modern traffic problems in the form of a powerful e-bike capable of long-distance, high-speed urban commuting with full connectivity modelled on global brands such as TeslaSwitzerland may not feature on lists of the world’s leading carmakers, but it is home to the manufacturer of a state-of-the-art form of commuter transport. Stromer battery-powered e-bikes, made in the small village of Oberwangen near Bern, are capable of travelling distances of as much as 180 kilometres at speeds of up to 45 kilometres per hour. Last year more than 10,000 bikes were sold – almost 70 per cent outside Switzerland.The Stromer e-bike was developed by Thomas ‘Thömu’ Binggeli, a cycling enthusiast. In a farmhouse south of Bern where he started a business

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House View, May 2019

May 3, 2019

Pictet Wealth Management’s latest positioning across asset classes and investment themes.Asset AllocationThere were no changes to our asset allocation in April. While we are encouraged by better-than-expected Q1 earnings and some improvement in earnings expectations, we remain neutral on global equities as we await new catalysts to justify current valuations. At the same time, we have a positive view of Chinese and Indian equities.We remain underweight government bonds given low yields, except US Treasuries, on which we are neutral. By contrast, we remain overweight local-currency emerging-market bonds, believing that they could outperform corporate credit as recent US dollar strength wanes.In general, we recognise that central banks’ support and an improvement in economic momentum could

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The year of the doves

April 15, 2019

Download issue:English /Français /Deutsch /Español /ItalianoWith all major central banks now having turned dovish, we can expect the continuation of ultra-low global interest rates in 2019. This is a relief for markets, which have already rallied in response. The greater concern is whether global growth can make a comeback.César Pérez Ruiz, Pictet Wealth Management’s (PWM) Head of Investments & CIO, will be looking for stabilisation in earnings revisions against the current backdrop of rich equity valuations. “For markets to continue to rally, we will need economic activity to bottom out and earnings revisions to stabilise in the second half of the year,” he writes in the April-May issue of Perspectives. “We see volatility in markets ahead until various resolutions have been reached,

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House View, April 2019

April 3, 2019

Pictet Wealth Management’s latest positioning across asset classes and investment themes.Asset AllocationAlthough we expect the economic picture to brighten and the decline in earnings expectations to end, we have a prudent stance on global equities, as expressed in our decision to book some profits on global equities and to invest in put options on large-cap European and small-cap US equities.At the same time, our willingness to take on reasonable risk means that the reduction in equities was matched by an increased allocation to local-currency emerging-market (EM) debt, part of a move toward seeking ‘carry’. Our desire to build a barbell strategy within this framework means we have more recently moved from an underweight to a neutral stance on euro investment-grade credits to mitigate

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Promoting Family Businesses

March 6, 2019

IMD and Pictet join forces to sponsor the 2019 IMD Global Family Business Award.2019  Global Family Business Award – The nomination process is openPictet joined forces with IMD and is now proud to sponsor the 2019 IMD Global Family Business Award, a prestigious annual prize presented to a company that successfully combines family and business interests, tradition and innovation, while at the same time fully assuming its social responsibility.The nomination process for 2019 has been launched, you may find out more on the award and criteria here.Partnership between Pictet and IMD LausanneThe IMD Global Family Business Center is based in Lausanne and has now been operational for more than 30 years. It was the first institute to focus on family businesses, their values, the principles they

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House View, March 2019

March 6, 2019

Pictet Wealth Management’s latest positioning across asset classes and investment themes.Asset AllocationAt current valuations, we remain prudent about global equities’ further potential, waiting for further clarity on economic and corporate growth before moving from our present neutral stance.At the same time, we remain confident that the central banks will continue to support markets. In Europe, fiscal policy is expected to give a marginal boost to growth.Although central bank dovishness is helping corporate bonds, flagging growth and the risk of inflation mean we are underweight credits in general. We favour quality in this space, which is why our preference goes to investment-grade rather than high-yield paper.The ‘illiquidity premium’ offered by alternative’ assets such as direct

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House View, February 2019

February 1, 2019

Pictet Wealth Management’s latest positioning across asset classes and investment themes.Asset AllocationWith expectations for earnings growth continuing to be ratcheted down, the recent rebound in equities owes a lot to the decline in valuations. We therefore remain neutral on equities overall. However, we believe central banks will be inclined to support financial markets this year and help ensure modest gains for risk assets. More than ever, an agile, tactical approach will be needed to investing.While we have moved to an overweight stance on emerging-market (EM) government bonds in local currencies, we remain negative on developed-market (DM) credits given the late stage we are in the economic cycle.Our currency strategy is posited on expectations that US dollar strength will fade

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Cycling in the city

January 29, 2019

High-tech bicycle lights are making cycling safer and helping authorities to design cities that work better for two-wheeled commuters.While it is an oft-repeated truism that biking is as good for your health as for the environment, only a very small proportion of the population has embraced a two-wheel lifestyle. In the EU for example, on average just 12% of people cycle every day, while 50% go by car and 16% use public transport. Walking rates are high, but most journeys are too far to be made entirely or largely on foot.However, there have been efforts to make cycling a key part of city planning—something that can now be done more effectively thanks to new technology that provides much more accurate data on rider behaviour than before. Irene McAleese, co-founder of See.Sense, which

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“The Three Amigos”

January 25, 2019

Download issue:English /Français /Deutsch /Español /ItalianoAfter a difficult year for markets in 2018, with very few asset classes posting positive returns, we anticipate that 2019 will be a year when the “three amigos”— consisting of a bear, a bull and a kangaroo—stake out their territory in financial markets. In other words, we expect plenty of ups and downs—but also think that investors sufficiently smart to exploit volatility spikes will, like a kangaroo, be able to bounce ahead.In the 2019 special edition of Perspectives, César Pérez Ruiz, Pictet Wealth Management’s (PWM) Head of Investments & CIO, explains why he is not afraid of volatility. While “we can be reasonably sure that 2019 will bring the return of a more standard volatility regime, with intermittent spikes, he writes.”We

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Emerging market fixed income outlook

January 22, 2019

Selectiveness will be key to navigating between 2019 tailwinds and headwinds.Overall, we think there are reasons for investors to be more optimistic on emerging market (EM) debt in 2019. A Fed pause, a limited rise in US Treasury yields, a weaker US dollar and an eventual US-China trade truce could all be tailwinds for EM debt after poor returns in 2018.Furthermore, monetary and fiscal stimulus should help put a floor on the recent Chinese growth slowdown. Along with some policy relaxation (tax cuts, reductions in banks’ reserve requirements, support for infrastructure investment, relaxation of property market restrictions), this could support Chinese credit, and lead to Chinese growth rebound in H2. Furthermore, an eventual trade truce with the US could boost business and investor

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How mobile technology is changing the way we shop

January 15, 2019

As is evident when travelling on public transport, people spend a lot of their idle time on mobile phones. But according to Stephan Schambach, the serial entrepreneur behind several major innovations in e-commerce, retailers have been slow to recognise that the future of their industry lies in mobile technology. Customers will increasingly demand the online experience available in other consumer industries such as travel and tourism, and the retail brands that are first to provide it will reap the rewards.Having created enormous value by capitalising on the major turning points in e-commerce over the last three decades, Stephan Schambach has launched a new company to take advantage of this latest inflexion point. NewStore’s aim is to create the world’s first Omnichannel-as-a- Service

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House View, January 2018

January 8, 2019

Pictet Wealth Management’s latest positioning across asset classes and investment themes.Asset AllocationAfter a bruising 2018, we expect further volatility ahead. But the recent sell-off in equities, particularly in the US, may have been excessive with regard to still-decent fundamentals. We will continue to use spikes in volatility for tactical advantage, believing they offer opportunities.We are cautious on corporate credit overall as leverage, increasing rates and slowing growth make the climate challenging. We are neutral on US Treasuries overall, with their relatively high couponproviding some protection against the further, limited rises in US rates we expect.We continue to see alternatives as a way to boost the relatively uninspiring prospects for traditional portfolios. Private

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The dynamic growth of collaborative workplaces

December 20, 2018

The sharing economy is disrupting many consumer industries such as hotels (Airbnb) and taxis (Uber). One traditional industry that is increasingly facing disruption is office accommodation, where co-working is growing fast around the world. As with traditional offices, there are desks, meeting rooms and other working facilities, but they are usually shared by people not employed by a single organisation who enjoy working together as a community with online services providing benefits.One of the most impressive co-working operators is a Chinese company based in Shanghai, founded in 2015 by Grant Horsfield who had previously created the upmarket naked Group, which operates eco-friendly luxury resorts in China. In 2015, the South African entrepreneur decided to extend the group’s brand

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Unlocking cash by sharing possessions

December 12, 2018

Three British entrepreneurs have created the world’s first insurance-backed peer-to-peer marketplace to rent almost anything, bringing the sharing economy to cameras, projectors, disco equipment, drones, hot tubs, kayaks and a lot more.Mass consumption has become a common complaint in modern life, as consumers increasingly feel that they need to acquire the latest gadgets, update their mobile phones frequently and own cars used on average for only 4 per cent of the day. Throughout our lives, we accumulate a large quantity of possessions that are completely under-used, while people who could make use of those items cannot access them.The sharing economy grows larger every year, however, with Airbnb providing a platform for home-owners to rent their accommodation to travellers more cheaply

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House View, December 2018

December 6, 2018

Pictet Wealth Management’s latest positioning across asset classes and investment themes.
Asset Allocation
We remain neutral on global equities overall, seeing relatively limited potential for developed market stocks in particular as earnings growth declines. We favour companies with pricing power as well as measurable growth drivers and low leverage.
We have moved from underweight to neutral in US Treasuries, as the rise in yields slows. But we have shifted from a neutral to underweight position in core euro area bonds ahead of monetary policy normalisation.
We have moved to underweight from neutral in corporate bonds, as rising rates threaten to expose vulnerable parts of the credit market.
We continue to diversify

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