Pictet favours peripheral government bonds

“Despite market uncertainty around Greece’s debt crisis and the expected US interest rate hike, we are sticking to our overweight stance on equities and believe they still have further to run, buoyed by economic recovery in the developed world, central bank stimulus in Europe and Japan, strong M&A activity and an improving earnings outlook” says Luca Paolini, Chief Strategist at Pictet Asset Management. 

“We remain neutral on bonds from an asset allocation viewpoint: yields have already moved up a lot in recent weeks, with bonds issued by countries in Europe’s periphery looking particularly attractive. The sell-off suffered by Spanish and Italian government bonds in the wake of the Greek debt crisis has pushed yield spreads on such securities to attractive levels. Within our fixed income portfolio, the latest market moves have encouraged us to increase our exposure to bond markets in the euro zone’s periphery; as a consequence, we are now overweight EUR government debt here.

“We recognise that the possibility of a stock market correction remains.  Nevertheless, fundamentals suggest the broader stock market rally should continue over the medium term and we have not changed our overall outlook or weightings on account of events in Greece.

“In our regional portfolio, we keep our preference for European and Japanese equities based on strong liquidity support and attractive valuations. In these regions, stocks also benefit from strong central bank liquidity and cheap currencies.

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