The chief strategist of the Swiss private bank, Luca Paolini, considers dividend stocks in Germany and Britain to be particularly attractive. But he advises a change of style on the European stock market.
Dhe Swiss private bank Pictet warns investors against carelessness. Actually, now is the right time to get out of the stock market, says her chief strategist Luca Paolini. Because many share prices are at record highs, the economic cycle in the United States in particular is drawing to a close, company profits are allowing only weak growth and profit margins are falling.
But Paolini advises against proceeding as usual and switching from the stock to the bond market at such a moment. Because at least in the industrialized countries, the expected returns on bonds are even lower than on the stock market because of the low interest rate phase.
The question of style
This is why the Swiss private bank advises investing in the stock market in Europe, but changing the style there. Instead of investing in America with index funds (ETFs) and thus investing heavily in high-growth growth companies such as the online retailer Amazon, investors should turn more to the deeply fallen value stocks, for example from the energy industry and banks. Paolini also cites the auto stocks recently spurned on the German stock market as an example of “value” values. For the Dax, Pictet has set a target of 14,000 points for the next twelve months – this would mean that the index would have a potential of almost 1,000 points or 7 percent compared to the current level. On the other hand, Pictet predicts that the American S&P 500 stock index will decline from currently around 3115 points to 3000 points.
The dollar question
According to Pictet, an important factor in investment decisions is the dollar, which the bank predicts a prolonged period of weakness. In the next year she expects the euro to appreciate from the current 1.10 to 1.15 dollars. Such a depreciation of the dollar is traditionally beneficial for investments in emerging markets, says chief strategist Paolini. In the bond market, investors could therefore take currency bets by buying high-coupon bonds in Brazilian reals, Mexican pesos and Russian rubles, he recommends. On the other hand, he considers corporate bonds to be exhausted, after all, the risk of default would increase as the global economy worsens.
In Pictet’s view, on the stock market, in addition to the focus on Europe and the focus on value stocks, one should go off the beaten track. In addition to the Russian stock market, Pictet also recommends the UK. Many investors are not invested there because of the political risks, says Paolini. But as soon as talks between the UK and the EU about an orderly Brexit are started, this topic will move out of the focus of most investors – even if many complicated questions still have to be clarified. Pictet predicts that the British pound will appreciate not only against the dollar but also against the euro. There are many undervalued value stocks in the UK stock market that offer a dividend yield of 5 percent. That is a risk-return profile that investors should get used to.
But Pictet also considers gold to be a smart investment in the low interest rate and is currently stocking up for customers. The private bank names $ 1,650 for an ounce of fine gold as the price target for the next twelve months, at least 12 percent more than currently.