(Yicai) Aug. 8 -- Global investors have started questioning the American exceptionalism narrative amid market turbulence caused by US trade policies, which can profoundly impact asset allocation worldwide, according to a managing partner at a leading Swiss wealth and asset management firm the Pictet Group.

Over the next five to ten years, the key forces shaping global markets will be the fiscal unsustainability of Western nations and the rise of Asia, Raymond Sagayam, Managing Partner, Pictet Group and Co-Head, Pictet Asset Management, said in an interview with Yicai last month.

Excerpts from the interview are below: 

Yicai: One of the keys to Pictet's success over its 220-year history has been to embrace the power of long-term thinking guided by megatrends. What megatrends do you foresee over the next five to 10 years?

Raymond Sagayam: From a macro standpoint, Asia continues to be a key area of our focus and a megatrend, which we continue to invest in as a firm. In the past five years, Asia for us was much more about facilitating foreign investors looking for expression in Asian investments, whether those were bonds or equities. We have a multi-decade presence in Asia, spanning from Japan to China to Singapore.

Another dimension that is very important is the debt sustainability issue, or I should say, the debt unsustainability. This is particularly important in the Western world, and of particular relevance in the US. We're at a very interesting point in the heart of the tariff discussions of what happens with US exceptionalism, and many global investors have very large expressions of US investments, both in equities and in bonds, and global portfolios. What happens to that, particularly in a context where debt levels are going to be remaining at very elevated levels?

This issue of debt sustainability is far-reaching. It goes beyond a mere refinancing of US treasury debt, but also begs the question about safe assets and about diversification and alternative choices of investments.

Yicai: Which sectors will be the main pillars for investors to navigate during such an uncertain time?

RS: We are now in a world where there is far less predictability in geopolitical and political outcomes. And that naturally converges us to a world of more regionalization and a real thirst for alternative safe assets and alternative investment choices. 

I'm not saying that is going to change overnight, but increasingly an investor community which has been challenged, really very challenged by an extremely difficult geopolitical world to navigate in, is going to be asking themselves two questions: Where am I going to get those similar returns in the next five years and do I feel as confident in that repeatability of where those returns came from before?

As a result of that, we're going to find more regional expression in the selection of bonds and equity exposure, the eurozone being a beneficiary potentially, and many emerging markets and countries, either through broad indices or individual expression.

Yicai: Which sectors will be good for the next five to 10 years?

RS: We typically cluster our thematic approach into three main areas. The reason for that is that we believe that these themes and these dimensions have multi-year, if not multi-decade, implications.

The first one is around the environment, the second one is around technology, and the third is around the societal acts.

If we think about the environment, not only is there an ongoing and strong desire to decarbonize globally, but the energy needs are only going to go up exponentially, because this is linked with technological and data requirements. Core part of our thematic approach.

On the technological and digital side, whether we are talking about robots, robotification, and automation, that's something that will continue to gain legs, supported and augmented not only by AI but generative AI in many sectors and fields. That is something which is not fully factored into the market, with real exponential productivity gains to be achieved in the years to come.

Finally, what do I mean by societal? The word is very broad. Here we're thinking of urbanization, the trend in urbanizing cities, and the infrastructure associated with that is something that will continue to have a strong positive tailwind. If we think about health and nutrition within a societal context, there are many in the current and the younger generations who are embracing that in terms of the quality of life and the approach to life. This is also going to be something that gives a very strong tailwind to the healthcare part of the societal cluster.

Yicai: Global investors have recently started questioning US asset exceptionalism. What is the implication?

RS: There were two things. One is the percentage of allocation to the US, and the other is the percentage of exposures in US dollars if their native currency is not US dollars. Those investors will also be asking themselves a question at a more fundamental and basic level: Are we comfortable with our dollar exposure, and do we need to start hedging that exposure?

Because we are coming from one extreme, the implication of any marginal shift away can be quite profound. More and more institutions that have a net positive exposure to dollars relative to their reference or base currencies will be asking themselves how hedged they should be. If they want to be more hedged, then they may consider selling dollars forward, and that is going to have an impact on the dollar.

Yicai: What are the meaningful alternatives if global investors have less trust in the US?

RS: There are many meaningful alternatives, and you said the 's' at the end of alternative, which is the crucial word, because I don't think there is a single dominant or credible alternative.

If we evolve our thinking to embrace the concept of safe assets or investment alternatives, then it gives rise to the consideration of pan-European equities, going beyond defense, infrastructure, and a potential re-industrialization of the eurozone economy, which could be very forthcoming and can have multi-year legs.

It begs the question of what has been hitherto referred to as emerging market bonds and equities as a regional alternative and in local currency expression. So that list of alternatives is quite broad and long.

Yicai: Pictet has made a serious commitment to Asia. What kind of role does China play in this commitment?

RS: We view China from two different lenses. One is that as an institution, we continue to serve Chinese institutions looking for investment expression potentially outside China. And we believe we are the ideal partner to do that given our 220-year heritage in this area.

We also want to make sure that Chinese bonds and equities remain a relevant part of our portfolios, not only emerging market portfolios, but also our global bond portfolios. Chinese bonds and equities are extremely uncorrelated with the rest of the world, and excluding them doesn't make sound investment sense, especially for funds, which should be including them. 

It makes an ideal complement and an excellent diversification tool, which ultimately has given a superior investment outcome so far and will continue to remain the case.

Editors: Dou Shicong, Martin Kadiev