Allocators sense opportunities in Europe and Japan

Western Europe, Japan and US are the regions most likely to attract client money in the next 12 to 18 months, according to PWM's Global Asset Tracker (see Fig 1). Meanwhile, European, global and Japanese equities are the asset classes offering very high or high value or growth opportunity in 2017/2018 (see Fig 2).

Eurozone equities are a high conviction call for Société Générale Private Banking. "Despite the heavy political agenda that may lead to spikes in volatility, corporate fundamentals are sound," says Alan Mudie, head of strategy. "In our view, corporate profits will pick up sharply in coming months on the back of the ECB’s accommodative policy, a weaker euro and a pick up in the economic cycle."

"Looking forward, we are considering upgrading European equities as the economy is improving, and the yield curve steepening is going to support the financial industry," says Manuela D'Onofrio, head of global investment strategy-private banking division at Unicredit. "Also, political risk tends to be overstated. After the German election, we expect the fiscal policy to become expansionary in Europe too."

While progressively implementing a rotation from bonds to equities, Italian bank BNL-BNP Paribas favours regions with "good fundamentals and reasonable valuations, like Europe and Japan," says Paolo Gianferrara, head of products and services. 

Merrill Lynch Wealth Management is positive on Japanese equities on a tactical basis due to "improving growth, balanced policy mix of monetary and fiscal stimulus, rising inflation and a weaker yen," states Niladri Mukherjee, managing director at the US bank.

Following the strong rally and the series of record peaks since Donald Trump's election, allocators tend to have a cautious view on US stocks.

"While the promised corporate tax cuts will further enhance EPS, higher interest rates and a strong dollar represent headwinds. Moreover, valuations are stretched. We are underweight US equities," says Société Générale’s Mr Mudie. 

Bank Julius Baer, however, has an overweight stance. "Most asset allocators have a cautious view on US equities on a valuation based rationale. Valuation is a very poor forecasting tool on anything shorter than a day time," says Yves Bonzon, CIO and head investment management at Julius Baer.

PWM's annual Global Asset Tracker survey is based on interviews with chief investment officers, heads of asset allocation and chief investment strategists of 38 selected, mainly global and regional, private banks. Together they manage more than $7.8tn in client assets globally. For the full results click here.