Investment Strategies
Pictet Says US Equity Selloff Creates Opportunities

The Swiss private bank and wealth manager said the recent fall in the US stock market may have been overdone, when set against the underlying performance of the economy.
Pictet Wealth
Management, the Geneva-based firm, sees the late 2018
sell-off to US equities as possibly overdone and thinks further
weakness gives investors a chance to buy back into the
market.
As wealth managers engage in the usual round of predictions of
what to do in the year ahead, Pictet said that the fall in US
equities last year “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,” it said.
Stocks declined last year, and valuations have eased slightly. On
the S&P 500 Index of US equities, for example, the
price/earnings ratio for 4 January this year was 19.31, down from
22.09 times earnings a year ago. Across equity markets in
general, the MSCI World Index of developed countries’ equities
fell by 8.71 per cent. Worries about US-China trade tensions and
rising protectionism, headwinds from rising US interest rates,
and the sheer fact of high US market valuations, had weighed on
markets at the end of last year.
Turning to other sectors, Pictet said it was cautious about
corporate credit overall because leverage, increasing rates and
slowing growth make the climate for this asset class
“challenging”.
“We are neutral on US Treasuries overall, with their relatively
high coupon providing some protection against the further,
limited rises in US rates we expect,” the firm said.
The private wealth manager said it sees alternative assets – such
as private equity and forms of property – as ways to raise
returns and diversify portfolios when performance from
conventional markets appears to be “relatively
uninspiring”.
“Private equity should keep its illiquidity premium over public
equities, and we are exploring private equity real estate,” it
continued.
The bank is targeting a spot oil price figure of $51 per barrel
by the end of the year, seeing the “equilibrium” oil price
holding around present levels, and with limited potential for
further falls so long as the dollar stabilises and global gross
domestic product grows by around 3.5 per cent.
In its home turf of Switzerland, Pictet said that the Swiss franc
could appreciate because of a current account surplus by the
Alpine state, trading around SFr1.15 against the euro on average
this year. It also expects the dollar to lose some strength
against the euro, particularly if the European Central Bank
begins to normalise interest rates.