Societe Generale Private Banking is keener on Spanish to German equities, is bullish on Japanese stocks, US tech equities and protecting against the chances of a yen depreciation, the French firm says of some investment positions it is taking for 2013.

Setting out its strategy outlook in a paper entitled A Break in The Clouds, the bank takes a more upbeat investment stance for the coming year, arguing that now is the time to look afresh at riskier asset classes.

“We are inclined to convey a more positive message for 2013, as risks look more balanced with potential upside on the US and emerging outlooks offsetting downside risks attached to the euro area,” the bank said in its report.

“All in all, we foresee some modest pickup of growth throughout the year and abating financial strains in the eurozone. As a consequence, investors may gradually increase exposure to risky assets in general and to equities in particular to capture higher expected returns in a more supportive environment,” the bank said.

Following massive injections of new money to the global economy under “quantitative easing” programmes by some central banks, Societe Generale Private Banking said emerging economies may experience rising inflation later in 2013 as stronger growth eats into spare capacity, putting more pressure on resources. The biggest bubble remains the property price bubble, it said. In general, though, the bank does not see inflation being a great risk this year.

Convictions

The bank set out eight “convictions” for the year:

-- Capital spending recovers in the US, so that industrials and IT thrive. SocGen is overweight on these sectors and prefers US high-yield bonds, and US equities to investment grade debt;

-- In the eurozone, an easing of uncertainties may favour peripheral markets, such as Spain. The bank prefers Spain’s IBEX index of equities to Germany’s DAX. It prefers Spanish bonds, such as three-year maturities and is overweight European banks and subordinated bonds;

-- It expects correlations between asset classes to weaken this year. As a result, the bank is avoiding momentum strategies in the equity world; it prefers US high yield debt, US stocks, and stresses that bottom-up stock selection is key;

-- If further emerging market growth is confirmed, the bank said that adding Chinese stocks is a cheap buy to get this exposure. It is overweight China, South Korea and prefers China to Brazil;  

-- A weaker yen exchange rate will boost Japan’s Nikkei index, so the bank is overweight Japanese stocks. SocGen favours increasing exposure to export-oriented sectors and hedging against yen depreciation;

-- The bank thinks that after such a strong performance in 2012, upside potential for investment grade bond is limited, while there is a risk of a drop;

-- On Latin America, the bank is overweight investment grade bonds in the first six months of 2013, preferring consumer sectors in Brazil;

-- On “frontier markets”, these are a diversification play. A strong copper story is unfolding in Zambia, while Nigeria is the candidate this year to be upgraded.

Among its forecasts, the bank expects US gross domestic product growth in 2013 of 1.8 per cent, a 0.2 per cent contraction in the eurozone; a 1.0 per cent expansion in the UK and the same figure for Japan, and an 8.0 per cent GDP rise in China.