Belief in the strength of the global economic recovery is leading Pictet Asset Management to look to up its weighting to equities in 2022.
While the Omicron covid variant may have led to more restrictions, Luca Paolini, chief strategist at Pictet, said a strong labour market, pent up demand for services and healthy corporate balance sheets, all mean the economic recovery remains resilient.
“The global economy is on track to grow 4.8% in 2022 with the US experiencing a strong recovery in both manufacturing and services,” he said. “Given our positive outlook for the economy, we are looking for opportunities to raise our weighting to stocks in 2022.”
Mixed fortunes
Pictet currently has a neutral stance within equities, with Paolini expressing concerns regarding liquidity conditions in the US as the Federal Reserve moves to rein in a surge in inflation with tighter monetary policy.
“We expect core inflation to peak in early 2022, which should prompt the Fed to raise interest rates by as early as June 2022,” he said.
While concerned about the US, Paolini added the picture is very different in China with the People’s Bank of China (PBoC) creating liquidity at a quarterly rate of of $232bn (£170bn, €204bn), which he noted is by far the fastest pace among all the major central banks.
“Chinese equities could yet set the pace as they are attractively valued following their losses during 2021,” he said.
Few bright spots
While valuations in China are more favourable than a year ago for both equities and bonds, he added that it is difficult to find good value in any major asset class.
Turning to bonds, at a time when monetary policy is tightening across the developed world in response to surging inflation, Paolini noted that government bonds continue to look very vulnerable and unlikely to deliver positive returns.
“Attractive opportunities are in short supply,” he said. “One of the few bright spots is Chinese government bonds as the PBoC is now easing monetary policy, bucking the trend in the rest of the world.
“Second, inflation remains under control, and we don’t expect it to exceed PBoC’s 3% target thanks to more muted demand than elsewhere and a strong currency. The third buy signal is valuation. China’s government bond yield remains attractive compared to what is on offer elsewhere.”
