Pictet partner and asset management CEO Laurent Ramsey sees the biggest threat in the current market environment as declining corporate profits. Clients will be reorienting and repositioning themselves.

«Many were surprised by the Fed decision - and even more surprised by the SNB decision,» Laurent Ramsey, CEO of Pictet Asset Management, said at an event Thursday in Zurich. He echoed others in saying central banks' hefty rate hikes are an attempt to dampen upward price pressures.

The Ukraine war, higher energy and food prices, and supply chain problems were to blame, he said. «Inflation has been underestimated as various factors have come together to reinforce each other,» he added.

Adapting to Inflation

Before markets can be expected to calm down, inflation must first be brought under control. «The biggest risk is in profit margins. Recession risk is underestimated and if profits fall, we will see a valuation correction,» and the correction is necessary because of the high liquidity in the market, he said.

Picking the right companies will become more important and also more difficult. «Many investors haven't seen an inflationary environment for a long time and now they have to adapt.» In addition to equities, Pictet is also looking at alternatives in private equity, such as infrastructure or emerging markets.

Emerging markets have the advantage that inflation is not an unknown factor there and cycles there are in different phases, he said. People also look at U.S. bond markets, commodities, and alternative investments but «Crypto is not a good inflation hedge, as we've seen,» Ramsey noted.

Clients are Holding Fast

While there has been no noticeable panic among clients, «you can see a lot of them rebalancing over the next 18 or 24 months.» 

Clients aren't the only ones feeling the pain. Ramsey expects asset management fees to come under pressure as well. «Transaction costs are under pressure and yields are lower,» and that could also lead to consolidation among asset managers.

Pictet itself, however, is not interested in acquisitions, he said. «We don't like M&A - we grow organically. We focus on our clients and our people,» the manager stressed.