Swiss bank Pictet Asset Management forecasts that the era of American leadership in financial markets is ending, and that now is the time for diversification away from US equities.
Pictet picks out alternative assets such as gold, hedge funds, and real estate markets as areas that investors should look to for diversification.
“The US is an expensive stock market, an expensive currency and the country’s growth gap relative to the rest of the developed world is shrinking,” says Luca, Paolini, chief strategist at Pictet.
“For these reasons, US equities will deliver returns that are only marginally above inflation over the next five years.”
Areas for diversification away from US equities
Paolini also believes that European equities are in reasonable shape, conceding that the economic challenges are a consideration, and that emerging markets look attractive, particularly in Asia with China projected to outperform.
“Beating inflation over the long run will require investors to build a more diverse portfolio, one in which emerging market assets, gold, hedge funds and other alternative assets feature more prominently,” Paolini sums up.
“It’s time to adapt to a different investment landscape.”
The Swiss bank lists factors such as high corporate debt, rising wages cutting into profit margins and real rates remaining negative as some of the economic obstacles to contend with in the years ahead.
Pictet’s assessment comes at a time when there are fears of a recession looming in the US, which would in turn morph into a global one.
Economic narratives like President Trump’s escalating trade war are bringing fears of a global downturn to a head, with hopes of an imminent deal between the US and China fading and the threat of tariffs being imposed on goods from Mexico as well.
US equities were given a boost this week by the suggestion from Federal Reserve chairman Jerome Powell that rates could but cut in order to sustain the economic expansion.
Experts point out that such Fed intervention can cushion the blow of trade wars, but not prevent a slowdown entirely.