(Reuters) – Geneva-based Pictet Group’s asset management arm expects the S&P 500 to rise 10% from its current levels, with improving economic growth and easy monetary policy helping to extend its rally.
The S&P 500 has risen around 21% from its October lows, and closed on Wednesday at 3909.88 points.
“There is a risk of a melt up in a way, in the U.S. especially, and you don’t want to stand against it,” Luca Paolini, chief strategist at Pictet Asset Management, told the Reuters Global Markets Forum on Wednesday.
But valuations were high at current levels, said Paolini, whose company manages more than $200 billion in assets.
U.S. bond yields may rise in the next three-to-six months due to an uptick in inflation expectations and possibly some pre-emptive Fed guidance on tapering its massive stimulus programme, Paolini said.He expected the 10-year treasury yield to end 2021 around 1.25%, last seen in March 2020. It is currently at 1.14%.
Paolini said global inflation levels are likely to remain low this year, but accelerate in 2022 when the global economy is expected to return to near-full potential.
But there was still a risk of rising inflation, which should be hedged with gold, some commodities and U.S. TIPS, or treasury inflation protected securities, he added.
Paolini called high-yielding corporate bonds an “incredibly risky” investment in the context of U.S. junk bonds falling below 4% for the first time ever.
To make a good return at this level (in junk bonds), he said, “you need to have … no rise in bond yields, no Fed taper, decline in default rates, a strong economy, and I think it is quite unlikely that you’re going to get all of that.”
(GRAPHIC: Comparison of 2021 performance of various asset classes – https://fingfx.thomsonreuters.com/gfx/mkt/qzjvqgjaovx/Comparison%20of%202021%20performance%20of%20various%20asset%20classes.png)
Paolini said there was not a strong case for bitcoin prices to rise in the long term, calling the meteoric rise of cryptocurrencies a side effect of a long period of monetary expansion.
“That’s a very speculative asset class, which I think is … incredibly dangerous.”
Bitcoin powered to a record high earlier this week, nearing$50,000, following Elon Musk-led Tesla’s investment in the cryptocurrency that had investors believing it may become a mainstream asset class.
(This interview was conducted in the Reuters Global Markets Forum, a chat room hosted on the Refinitiv Messenger platform. Sign up here to join GMF: https://refini.tv/33uoFoQ)
(Reporting by Divya Chowdhury in Mumbai, Aaron Saldanha, Lisa Pauline Mattackal and Supriya Rangarajan in Bengaluru. Editing by Jane Merriman)
