Pictet Asset Management maintains its preference for the two most cyclically-sensitive areas, emerging markets and Japan.
Emerging markets benefit from improving economic and earnings momentum as well as attractive valuations, Pictet says on its November barometer-report.
Emerging markets average price-to earnings ratio for projected earnings over next 12 months is just 10.7, according to Pictet. This presents a 22 percentage discount to global equities.
Pictet estimates that emerging equities are set for a sustained period of outperformance. Especially because Fed tapering no longer is an imminent threat.
Instead, Japanese equities are no longer cheap after a stock rally this year. Still, there is some growth potential left, according to Pictet.
Weak yen, the central bank’s asset reflation policy and Japanese firms’ above average sensitivity to the global business cycle are however strong advantages for Japanese equities.
“A fall in real bond yields into negative territory for the first time since 2008 should meanwhile encourage borrowing. Moreover, a planned increase in capital expenditure and the latest industrial production and retail sales data suggest a growth pick-up into year-end”, says Pictet.
