Pimco overweight on global equities, especially Europe, Japan stocks

New York

PACIFIC Investment Management Co (Pimco) said on Tuesday that it has placed an overweight position on global equities, particularly European and Japanese equities, and is underweight on global government bonds and other securities that reflect interest rate exposure.

US equities, following double-digit gains in the S&P 500 last year, are "fairly valued," Pimco said in its 2015 Asset Allocation Outlook report, adding that it expects stocks in Europe and Japan to outperform the US.

Overall, Pimco said investors may need to brace for another challenging year due to uneven global economic growth and high valuations.

Mihir Worah, chief investment officer of asset allocation and real return for Pimco, said valuations in European and Japanese equities "are more attractive, their central banks are easing and there is potential for upside surprises in earnings growth."

He said that key risks to this view are the effectiveness of the Bank of Japan's policy and the ability of the European Central Bank to deliver versus what are now high market expectations.

Pimco said its emphasis in 2015 will be on exploiting relative value opportunities across asset classes rather than "bold 'beta bets' that have been sufficient over the past few years."

On spread products, Pimco recommends that investors selectively choose individual credits in non-agency mortgage-backed securities, investment grade bonds, high yield "junk" bonds and emerging markets credits "where attractive spreads can offer diversified sources of portfolio carry, with careful credit analysis helping to identify strong credits and avoid defaults," Mr Worah said. REUTERS