Stocks in Europe and Japan are preferable over U.S. equities, but it is not solely because their central banks are piling on the monetary stimulus to support their economies, said Luca Paolini, chief market strategist at Pictet Asset Management. ‘We see an improvement in corporate earnings and valuations are also much better in Europe and Japan,’ said Paolini. ‘And we see more upside on margins, especially in Europe, compared to the U.S. where corporate margins are actually falling.’ In his view, Japanese equity remains very attractive because corporate profitability has held up well, even though valuations have not yet expanded. Meanwhile in Europe, corporate profit margins should receive a boost from low energy costs and a recovery in exports, according to Paolini. He said he expects monetary policy will also become more expansionary with the ECB delivering more stimulus at its upcoming meeting, including the purchase of senior bank debt to alleviate the funding pressure in the sector.
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