Several years into what has been a pretty good bull market depending on where you look, things are starting to look a little bit more difficult.

Markets are up, but only a little.

To help us think about what happens next, and where perhaps value might lie,

we're joined by Luca Paolini, chief strategist for Pictet Asset Management.

Hello again. So as you can see, the central bankers are with us and perhaps key to what happens, and I think we'll come to that,

but first perhaps you could set the scene for us, where are we in terms of this big bull market for stocks?

And I think you've got a chart to help do that here.

Yeah, we still believe that global markets are in an uptrend and the main reason is that the US labor market is still pretty much solid,

but its weakness obviously is in China but the US labor markets in the past,

in the past actually twenty years always keeping the trend and the trend is still up for equity markets.

But it will be, will be still very very volatile

And I think we can see that from this chart here in terms of the labor market, this is the scales inverted here on the left,

so the line moving up means more people have jobs.

Yes and as you can see for example, in 2011 when the stock market was kind of fluctuating

well, the trend was still up for the labor market and basically what happened after that in the equity markets continue to rally

and we expect the same trend in the next 12 months.

And this is the down trend for global equities not just the US.

Well we expect actually US to underperform but we think that global equities will move higher

there is no much upside, but the trend is still pretty much in place.

And in terms of global equities, I think we've got another chart here which sort of gets into some of the outlook there in terms of the earnings.

While we are now in the earnings season in the US and what we know is that there is no profit growth, really it's flat or slightly down

and the main reason is obviously energy and something which we have to be a little bit concerned about is that in the past,

whenever we had this kind of flat earnings, well, we had a recession in the following years.

I think this is something we have to monitor, but again most of these declines come from the energy sector.

So does that mean things are OK as long as we ignore energy?

Dan: Or energy is too big to ignore? Luca: Yeah, that means actually so big to ignore,

but in a way, the negative now or the very, the flat numbers we see in earnings may be exaggerate,

the kind of the earnings that we have in the US but also globally.

Ok, so in terms of what you like then I mean if the US isn't looking so great, what should we be thinking about in terms of stocks?

Definitely European equities and also Japanese equities. In a way Europe has a little bit of everything,

Luca: you have good evaluation, you have now an improvement in growth Dan: and I think we've got you can show us that evaluation

we have obviously bank liquidity improving, actually lending growth is turning positive

and I think what is interesting when you look back in the last 40 years,

Europe is trending a pretty much an all-time low related to the US.

We see here that we are pretty much back to 73 really.

So I think, obviously part of this is because the Euros being weaker,

but clearly the underperformance of Europe makes sense a few years ago.

Now with the ECB with obviously the improvement in earnings, in bank lending improving is probably going to turn

and we expect European equities to do very well in relative terms over the next 6 to 12 months.

What about the earnings question in Europe though, because we've had I think it's 4 or 5 years now

of earnings which have always looked like they were going to grow in Europe but every year they've disappointed.

And so are we actually going to get growth in Europe next year?

Actually when we look at earnings growth in Europe this year will be around 10 to 5%,

if we remove the UK, which is obviously negatively impacted by the energy prices,

but I think the risk growth in Europe, when you look at GDP we're talking about 1.52%,

but what is really critical is that for the first time now in a few years

we see an improvement in bank lending, which was not the case before

and this is really key for bank profits and for earnings from middle Europe.

And is that a sort of a fundamental core, or is that more of a tactical position kind of core?

Well, it's definitely a core for the next 6 to 12 months.

Over the long term we see risks, political risk especially Europe, but definitely what we see is a turn

in the earnings cycle, in the bank lending cycle, evaluation and a weak euro.

Everything seemed to support Europe at least over the next 12 months.

And back to the beginning, so Europe is supported by quantitative easing here from Mr. Draghi,

but what about Mr. Abe in Japan, we haven't talked about the Japanese market,

how're you feeling about that?

Well, Japan in a way looks very similar to Europe, they have good evaluation,

a very expansionary monetary policy we see actually some kind of consideration in growth and bank lending.

What is different in Japan is that we see some real structural reform,

but we don't really see Europe and we also see especially in Japan,

big inflows into the equity markets from the retail investors, which will support the market very strongly.

So it's a very similar story, but it's probably more longer term than shorter term, in the short term but in Europe,

in the longer term is better in Japanese equities.

Alright, well, thank you for joining us Luca.

And so it sounds like there are reasons to be optimistic about stocks even if it doesn't necessarily involve the US.