Equities have little downside risk, says UBP chief

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Many global companies and particularly those listed in Europe are trading near their trough, according to Alan Mudie, CIO of private banking at Union Bancaire Privée (UBP).

Mudie, who helps oversee €4.5 billion in multi-asset institutional and private accounts, said he is looking to capitalise on this and significantly raise his portfolios equity allocation over the next few months.

'I don't think that there is a great deal of downside risk for equities,' Mudie told Citywire Global.

'We would favour European equities because on a valuation basis they look cheaper and also have much more potential for earnings to increase.'

He added that he is actively increasing his exposure to Chinese companies on the expectation a loosening in Chinese monetary policy would support an outlook for double digit earnings growth.

'All other investors seem to talk about Chinese stocks positively but nobody is buying yet. We think valuations have become very attractive and so we are buying.'

Fellow UBP managers Rob Jones and Scott Meech, who run the UBAM Europe Equity, were a bit more cautious over the allure around Chinese equities when they spoke to Citywire Global last month saying they could backfire and the aftermath could be comparable to the dotcom crisis.

Stocks currently make up 25% of the firm's institutional and private clients portfolios and Mudie said he expects their equity allocation to be increased by 5-10% in the coming months. In 2010 and 2011, their equity allocation was between 10-15%.

Contributing to the trend that institutional investors are backing away from sovereign debt, Mudie said UBP has not held any government debt issued bu OECD nations since 2011.

'We still judge that the risk/return on Spanish and Italian bonds is not attractive. In core countries, we are seeing no or even negative return on bonds that we can't justify to our clients in a view of preserving their capital over time.

Currently holding 10% cash, Mudie said he would reduce this position as well as his exposure to investment grade corporates, which currently make up around 15% of total exposure, in order to buy stocks over the coming months.

High yield credit compared to investment grade counterparts, he added, still have better valuations.

His remaining overall allocation includes 20% in gold, 5% in alternative assets including hedge funds and 40% in fixed income.