Talking Point  

Pictet cuts equity exposure with warning on valuation

Pictet cuts equity exposure with warning on valuation
 Nataliya Vaitkevich/Pexels

The rally on risk assets which has been evident globally may be coming to an end, says Luca Paolini, chief strategist at Pictet Asset Management.

Paolini has cut the equity exposure of Pictet funds to “neutral”, that is, the same weighting as the market as a whole, having until recently held a larger allocation to equities than did the market.

He said: “Equities have seen strong recent gains, stretched valuations and there is the prospect of a less favourable growth/inflation mix. While economic conditions continue to improve, there are signs the market rally is running ahead of fundamentals. We have consequently taken profits on global equities, and dialled down our allocation to neutral.”

Paolini added: “Just four months into 2021, global equity markets have already hit our targets for the year (returns of 10 per cent). That and tentative signs that the momentum in economic and corporate earnings growth may be peaking has led us to take some profits.

"We therefore downgrade equities to neutral, and trim our exposure to cyclical stocks. Globally, stocks’ earnings multiples should come under further pressure in the coming months as monetary stimulus fades.”

“With valuations rising to their highest in more than a decade, stocks will require unusually healthy conditions to continue their rise. In our view, though, the favourable environment for risky assets may not last much longer. US stock markets look particularly vulnerable to a pullback.”

david.thorpe@ft.com