UBS Global Wealth Management’s chief investment officer warned investors that nostalgia for the old international order will not serve as a reliable investment framework as geopolitical competition reconfigures markets and policy priorities. In a monthly letter, the firm urged investors to broaden exposure and emphasize diversification in portfolios, framing the evolving environment as one of heightened volatility and strategic realignment.
The letter, which paraphrased a recent Davos speech, pointed to several geopolitical flashpoints as evidence of a world moving away from a shared global order. UBS highlighted the US administration’s so-called "Donroe Doctrine," strained relations between China and Japan, episodic violence involving Iran, and fractures within NATO over issues tied to Greenland and Ukraine - all of which the wealth manager said illustrate a move toward geopolitical blocs seeking greater strategic autonomy.
Despite these geopolitical headwinds, UBS retained a constructive market stance. The firm forecasted the S&P 500 rising to 7,700 by year-end from a current level of 6,876, and projected earnings per share growth of 12% for 2026. UBS also expects global equities to increase by more than 10% by the end of 2026.
UBS observed that the most recent equity upswing has been narrow in scope. The so-called "AI7" group - NVIDIA, Broadcom, AMD, Micron, Alphabet, Amazon, and Microsoft - has appreciated by roughly 200% over the past three years, about five times the gain delivered by the rest of the S&P 500, according to UBS data. The brokerage expects market leadership to evolve away from semiconductor manufacturers and toward companies that sell AI solutions directly to consumers and businesses.
Underpinning UBS’s sectoral view is a broad forecast for AI-related investment. The firm projects global AI capital expenditures to grow at an average annual rate of 25% from 2025 through 2030, reaching approximately $1.3 trillion per year by the end of that period. UBS also referenced the Ramp AI Index, which measures the share of US businesses with paid AI subscriptions; the index rose to 47% in December, roughly double its level a year earlier.
UBS flagged government intervention as a material near-term risk, particularly around affordability concerns. The firm cited a Politico poll from late 2025 in which 56% of Americans identified high living costs as a top issue. At the same time, UBS noted that 62% of American households owned stocks, based on a 2025 Gallup poll, and suggested that this ownership profile reduces the likelihood of sweeping policies that would be broadly negative for markets.
UBS pointed to comments from President Trump at Davos indicating a preference for Congressional solutions, such as action on credit card rate caps, rather than executive orders - a signal the wealth manager interpreted as evidence of limited appetite for abrupt market-disruptive interventions.
The push for strategic autonomy is producing beneficiaries across industry sectors, according to UBS. The firm highlighted a recent $500 billion Taiwan investment arrangement that includes $250 billion earmarked for semiconductors and AI capacity. It also cited policy efforts in other regions: Europe’s Chips Act aims for a 20% global market share by 2030, and China’s Five-Year Plan allocates four trillion yuan for grid investment, an increase of 40%.
Defense-related spending is another area of accelerated investment. UBS noted German defense outlays are projected to reach 3.5% of GDP by the end of the decade, and referenced a call from President Trump for a $1.5 trillion military budget in 2027, up from $901 billion in 2026.
Reflecting these dynamics, UBS moved to upgrade certain asset classes. The brokerage raised ratings on US consumer discretionary equities and emerging-market bonds to "Attractive." It also forecasted an acceleration in European earnings of 7% in 2026 and 18% in 2027 after three years of stagnation.
UBS further observed that geopolitical concerns have shifted investor positioning away from foreign holdings of US Treasuries while lifting demand for gold. The wealth manager continues to favor gold together with quality bonds as diversification tools in an increasingly fragmented global environment.