LIVE MARKETS-European stocks preferred, but not the time to add risk - Pictet WM

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EUROPEAN STOCKS PREFERRED, BUT NOT THE TIME TO ADD RISK - PICTET WM

FX is increasingly important for equity markets, according to Pictet Wealth Management's head of equity strategy Graham Secker, who prefers European stocks but is not adding risk just yet.

FX dynamics are a key reason behind his preference for European shares over global ones.

"If European equities go sideways from here and the euro goes up 5%, then obviously effectively as an investor you make 5% from the currency," he told Reuters.

The euro has rallied over 9.5% versus the dollar in 2025 amid uncertainty over U.S. trade policy and the fiscal deficit, and bearishness continues. EUR=EBS

"If the U.S. equity market goes flat but the dollar goes down 5%, for a global investor in some respects you’ve lost 5%," Secker added.

And while the S&P 500 .SPX is up over 20% since early April versus a 18.5% rise for Europe's STOXX 600, Secker says longer-term investors are disallocating from U.S asset exposure.

"I can’t imagine there are any investment committees around the world that are thinking "do we not have enough?".

The only factor pointing to higher markets in the short-term is technical sentiment positioning, he said.

"As and when that plays out, we are left with high valuations with a deteriorating fundamental outlook".

Markets could be following a "W" shape with a potential second leg down through summer as fundamentals weaken. For now, the team is not adding risk.

"Using the analogy of the roller coaster ride; there's lots of twists and turns, climbs and falls," said Secker.

"It can get scary from time to time and it's probably not time to take the seatbelt off yet."

(Lucy Raitano)

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