“We are not worried about the US market, but more about the European markets” (Christopher Dembik, Investment Strategy Advisor at Pictet Asset Management).
“We remain convinced that the US markets still have significant upside potential, despite the high valuations,” says Christopher Dembik. It is the only developed economy that is resilient and maintains extremely dynamic consumption. The only slight downside is that the property market at is not very strong. But this is far from a crisis. It’s more like a market in slow motion. Meanwhile, the US economy is benefiting from its appeal. Financial flows continue to head for the United States in search of performance, with savers favouring dollar-denominated investments to finance the deficit. US Treasuries remain the benchmark assets of the financial world. While Trump’s pro-growth, pro-business agenda promises a bright future for Wall Street, investors are going to have to keep a close eye on long-term US Treasury yields, with a fateful threshold at 5%… unless the rise is justified by a booming economy.
“Of course, the market is never safe from a correction, but the long-term trend remains positive,” says Chistopher Dembik.
Europe, on the other hand, remains unattractive and is likely to continue to brood, given the gloomy state of the European macroeconomy and microeconomy. A reflection of this lack of dynamism is the current absence of a driving force in its core values. With the exception of SAP, no stock really topped the charts this year. This is to be expected, given that Europe is caught up in a number of knots: geopolitics, deficits, sluggish growth, a sluggish Chinese economy that is weighing on mainly German exports, and a luxury sector that is in a state of collapse. Not to mention a possible trade war in early 2025 with tariffs imposed by Trump’s new team against China and Europe. To this panoply of problems, we must add the cost of energy, which is four times lower than in the United States. As a result, Christopher Dembik can only be very cautious about the European markets, with the central bank far too slow to cut interest rates, despite inflation being better under control than in the US. The 2025 trading year for European markets could end in disappointment. As a strategy, stock picking is preferable to market weighting.
The dollar on its way to parity
And the icing on the cake is that exposure to the US market also means we can benefit from a very likely appreciation in the dollar, which is already supported by bond yields higher than those on the European market, and its superior growth. The start of the Trump 2.0 era is already synonymous with a strong dollar. If the Trump administration implements tariffs, the dollar is likely to strengthen further. “We won’t be surprised to see the euro collapse further in the weeks and months ahead The Pictet specialist believes that the dollar could flirt with parity against the euro.
Although the small caps chart has shown some signs of a recovery, the real momentum of the US market is still in the large artificial intelligence stocks segment, but not necessarily among the magnificent 7 (Amazon, Microsoft, Apple, Tesla, Nvidia, Meta, Alphabet). Artificial intelligence remains a key area of focus, with strong growth, but with choices more geared towards digital, through applications that may be more discreet (e.g. Google, which uses AI for its advertising). At a time when the share prices of the leaders in AI have risen by around 200%, another way of investing to avoid high valuations is to diversify into clean energies with more traditional valuations. What’s more, Amazon has already sniffed out a good idea and is on course to supply 100% of its operations with renewable energy by 2025. Also a sign… Note that this segment should not be overly impacted by Trump’s policies. And the cost of producing renewable energy has fallen significantly in recent years.
China unconvincing
“It’s too early to get carried away with Chinese stocks,” says Pictet AM’s strategist, after the Chinese government’s latest attempts at stimulus were deemed too timid to provide a boost to the economy. “We remain very cautious about China, even though it is still complicated to get a full picture of the real state of the economy’s health. We should not expect a massive stimulus, but rather adjustment measures such as debt refinancing. From our point of view, a long/short strategy on China is better suited to capturing movements,” explains Christopher Dembik.
Luxury, India, gold, silver, oil..
We continue to believe in luxury in the long term, but we have become very cautious in the short term.
India remains a long-term investment, but it comes at a premium of around 35% to other emerging markets and calls for patience. The first minor tensions are appearing on some emerging currencies, reinforcing this cautious approach.
With no external shock and China’s economy still recovering, commodity prices will remain calm. Gold, on the other hand, could be the deal of the decade, supported mainly by ongoing purchases by central banks. If these central banks continue their policy of increasing the proportion of gold in their balance sheets, the weight of silver will also increase more discreetly. And the white metal, which is lagging behind, could end up being magnetised by gold as it rises.
The trend in oil prices remains bearish, with production cuts by OPEC countries scarcely respected. With a target of $65 for WTI..
