Guehi has been backed to play a key role in City's title challenge, as they sit five points behind Arsenal with a game in hand at the top of the Premier League table, having joined alongside Antoine Semenyo in January.
Pearce added: "I’ve got to say, in the summer I was asked who I thought would win the league and I said Liverpool. I thought they were looking almost unbeatable, but they had a real bad start to the season and probably from around October onwards, I fancied Arsenal to win the league. My mind hasn’t changed on that.
"City have looked a little bit fragile defensively and allowed too many chances on their goal over the period of time that I’ve been looking at the Premier League. That has put the question mark in my mind. But with the addition of Guehi at the back, and Semenyo coming in as well, it has really levelled the playing field in many ways. But I still feel as though Arsenal have got a really good, strong squad.
"I think the only thing that they haven’t done right this year is 45 minutes in the second half against Wolverhampton – I think they were really poor then. Aside from that, they’ve won eight out of eight in the Champions League, they’re in the final of the Carabao Cup, they’ve got a decent draw in the FA Cup and they’re top of the league.
"It’s very difficult to criticise and I know people in the media are trying to heap pressure on Arsenal. With the pressure coming from Manchester City, it’s an intriguing title race for all of us to watch, but I still fancy Arsenal. As long as they’re strong enough within the dressing room, I think they’ll win the league."