Amundi bets on global bonds and yen, says shares still expensive

LONDON, Nov 24 (Reuters) - Amundi, Europe's largest fund manager, said on Thursday that it was underweight global stock markets, favoured the yen and expected the U.S. dollar to weaken longer-term as interest rates near a peak and the growth outlook sours.

In its 2023 global outlook, Amundi said one of its main themes for next year was that "bonds are back," adding that it favoured government bonds and investment grade debt.

Decades-high inflation and aggressive central bank rate hikes have roiled world markets this year.

Ten-year U.S. and German bond yields are up over 200 basis points each this year , the S&P 500 stock index is down almost 16% and the U.S. dollar, bolstered by Federal Reserve tightening, has soared 11%.

Vincent Mortier, group chief investment officer at Amundi, which manages 1.9 trillion euros ($1.98 trillion) worth of assets, told Reuters the firm remained cautious on the outlook for equity markets but hoped to dip back in next year.

"It is difficult to be very positive on the equity market at current prices," Mortier said.

Mortier said Amundi was constructive on China, where overall, the firm had a neutral to positive stance on Chinese equities and credit, citing factors such as hopes for an easing of stringent COVID-19 rules.

In Europe, where Amundi anticipates a lasting energy crisis under its central scenario, the asset manager saw a "high probability" the European Union would issue more common debt.

The EU is already issuing joint bonds for an up to 800 billion euro ($879 bln) post-COVID recovery fund. The war in Ukraine has boosted talk of more issuance to fund defence and energy security needs.

PEAK DOLLAR

Amundi said that while the U.S. dollar could strengthen further near-term, it was likely to weaken over the longer-term with a peak in U.S. interest rates coming into sight.

A "substantial majority" of policymakers at the Fed's meeting early this month agreed it would "likely soon be appropriate" to slow the pace of rate hikes, minutes released on Wednesday showed.

In a scenario of moderating price pressures and rates peaking, Amundi said it expected the dollar to weaken 4.7% on a trade-weighted basis next year.

"Short-term we think the U.S. dollar can strengthen a little bit and the euro goes back below parity," Mortier said. "But medium to long-term, we think the dollar will weaken and the euro goes back towards around $1.06."

Mortier added that Amundi turned overweight on the Japanese yen and the Swiss franc last week, meaning it expected both currencies to strengthen.

He said the firm was underweight British government bonds, known as gilts, and sterling but added that this was not "forever".

While British markets have stabilised from a rout sparked by a so-called mini-budget in September, sentiment remains fragile - especially as the economy faces a lengthy recession. ($1 = 0.9590 euros) (Reporting by Dhara Ranasinghe; editing by Yoruk Bahceli and Tomasz Janowski)