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US stocks seen to outperform in 2014: Pictet

Swiss private bank bearish on commodities and bonds
Friday, November 22, 2013 - 06:00

DEVELOPED markets, particularly US stocks, are set to outperform in 2014 while investors are advised against buying commodities and bonds, according to core recommendations by Swiss private bank Pictet & Cie for the coming year.

"We think the US economy is improving, and will be the first among developed economies to recover," said chief investment officer Bhaskar Laxminarayan at a press briefing yesterday.

"The US private sector is on track for a smooth deleveraging whilst household wealth is recovering and is rapidly normalising.

"Despite the government shutdown in October, the numbers were still good - this tells us that the improvement is structural. So as the economy improves, so will money flow into the US dollar. In fact, if you take a three-to-five year view, we think we are in a structurally strong market for the US currency."

Pictet is privately owned, which - according to its South Asia chief executive Anuj Khanna - gives it an advantage over other wealth managers.

"We are a large, independent money manager with no external shareholders that we have to answer to," said Mr Khanna at yesterday's briefing. "This gives us complete independence when forming our views."

Early this year, Pictet recommended clients to exit gold and bonds, and shift money into US stocks - calls which have proven rewarding.

"Apart from developed markets, we are now recommending clients shift 15-20 per cent of their portfolio into alternatives, which are mainly three assets: private equity, the biggest and best money managers, and real estate," said Mr Khanna.

On commodities, the bank is bearish because the rally of the past few years was driven by demand from emerging market growth. "With the US and Europe slowly recovering, that demand is much less now, so that play is over," said Mr Laxminarayan.

"As for bonds, there is no reason to be invested as interest rates are expected to rise, and spreads over the risk-free rate are now so small that you aren't being compensated for risk."

Asian markets, in the meantime, will continue to see an outflow of money as lead indicators continue to show weakness though North Asia is forecast to fare better than most.

Within US equities, Pictet recommends moving away from defensive yield plays and favours companies that would benefit from a turnaround in the domestic economy, such as construction firms and carmakers.

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