Pictet sees Europe as beneficiary of investment diversification
The reciprocal tariff measures announced by the US on 'Liberation Day' (2 April) caused US stocks to plummet and triggered a heavy sell-off of US bonds, leading to a spike in Treasury yields. Raymond Sagayam, Managing Partner of the Pictet Group, believes that while equity and other asset markets may have returned to 2024 levels, the underlying fear of potential future disruption could have a lasting impact. As a result, investors are increasingly seeking to diversify their portfolios, with European stocks and bonds emerging as attractive alternatives. Emerging markets (EM), particularly in Asia, are also expected to benefit.
Although President Trump suspended the tariff measures less than a week after their announcement, and the S&P 500 and Nasdaq recently hit record highs, Mr Sagayam points to the psychological impact on investors. He observes that investors are not only diversifying their exposure to US bonds and equities, but also, more critically, currency risks.
In this context, European stocks and bonds offer a compelling aggregate alternative. Mr Sagayam highlights that European assets, particularly equities, are significantly undervalued. With inflation in the eurozone “well under control” and the potential for further rate cuts by the European Central Bank (ECB), euro-denominated assets could play a key role in mitigating currency risk. Sagayam believes this could mark the beginning of a multi-year trend of increased interest in European asset classes, encompassing both bonds and equities.
Data from LSEG’s Lipper Fund shows that year-to-date inflows into European equity funds have surpassed USD 100 billion, a threefold increase year-on-year. Meanwhile, outflows from US equity funds have doubled, reaching nearly USD 87 billion. Beyond European assets, emerging markets are also poised to benefit. Mr Sagayam observes that EM equities and debt were out of favour for many years due to structural price-to-earnings (P/E) differences relative to the dominant US equity market. On the bond side, the supremacy of the US dollar has historically weighed on the performance of EM bonds.
However, this dynamic is now beginning to shift materially.
Within EM, Chinese and Hong Kong assets continue to attract positive demand. Mr Sagayam points out that Chinese equities have a near-zero correlation with the MSCI World Index, making them an effective tool for risk diversification. He emphasises that excluding Chinese and Hong Kong assets from an EM equity or bond portfolio could result in a significant loss of correlation benefits. Many clients, he notes, continue to expect these assets to be included in their portfolios.
Addressing concerns about liquidity when comparing European or EM bonds to US Treasuries, Mr Sagayam notes that the US Treasury market is valued at approximately USD 30 trillion, while Chinese government bonds total USD 11 trillion, and the eurozone aggregate stands at around USD 13 trillion. He adds that combined Chinese and euro area bonds account for over two-thirds of the US Treasury market. He adds that USD 13 trillion is a substantial figure, and this number is likely to grow, particularly given Europe's increasing infrastructure and defence needs. Mr Sagayam stresses that while individual alternative assets may currently appear less liquid and smaller than US Treasuries, viewing them collectively as a basket of safe assets reveals sufficient market depth and liquidity.
As Co-Head of Pictet Asset Management, Mr Sagayam notes that the firm’s assets under management (AUM) in Asia have grown by 40% over the past five years. Asia remains a strategic focus for the Pictet Group. Initially focused on facilitating European and foreign investments into Asian assets, particularly renminbi (RMB) bonds and Chinese equities, the Group's strategy is now evolving to serve Asian private clients and institutions seeking global exposure. With 630 employees across Asia, including 270 within Pictet Asset Management, Mr Sagayam expects Asia to emerge as one of the firm's highest, if not the highest, growth regions.
Article published in the Hong Kong Economic Journal on Monday, 21 July 2025, ©Hong Kong Economic Journal.
