UBS Asset Management says it continues to favor global equities, arguing that underlying economic strength and increasingly broad corporate earnings gains provide a foundation for risk assets even as policy risks mount.
In its most recent global multi-asset outlook, the firm pointed to an improving U.S. labor market and accelerating activity in global manufacturing as key supports for the world economy. Those factors, UBS said, help explain why equities have shown resilience even while bond markets face growing strain as investors price the possibility of higher-for-longer U.S. interest rates.
UBS highlights a split market backdrop - resilient risk assets on one side and challenged bond markets on the other - as market participants weigh firmer economic momentum against the prospect that the Federal Reserve may maintain a relatively hawkish stance. The firm expects earnings growth to remain a tailwind for equities, while acknowledging that periods of increased volatility are possible if monetary policy uncertainty intensifies.
While UBS anticipates headline inflation will be eased in part by lower oil prices, it cautions that underlying U.S. inflation measures may stay elevated. That persistence, the firm said, would leave additional Fed rate hikes on the table and lend support to a stronger U.S. dollar.
"We remain overweight equities and prefer emerging markets and Japan, where our leading indicators point to the strongest earnings growth," said Evan Brown, Head of Global Multi-Asset Strategy and Portfolio Management for the Americas and Asia at UBS Asset Management. He added that investors should maintain exposure to artificial intelligence-linked stocks because of the sector's surging earnings, but should diversify as positioning becomes more crowded and leveraged single-stock ETFs attract greater participation.
On fixed income, UBS Asset Management signaled caution toward U.S. Treasuries, forecasting that they will underperform equities as markets increasingly incorporate the risk of additional Fed hikes. By contrast, the firm sees relatively better prospects in U.K. and Australian government bonds, where slower economic growth may make yields more attractive on a risk-adjusted basis.
UBS also expects the U.S. dollar to remain supported, arguing the Fed is likely to sustain a more hawkish stance than other major central banks. Those peers, the firm said, face slowing tightening cycles amid weaker growth and inflation dynamics that are more influenced by energy prices.
Bottom line: UBS retains an overweight stance on equities with tactical preferences for emerging markets and Japan and continued exposure to AI-related names, while urging diversification to manage crowded positioning and guarding against volatility from monetary policy and persistent U.S. inflation.