Despite an improving macro backdrop in 2023, UBS is not ready to call it a bull market year and is advising investors to be defensive.
In 2023, many of the key pain points of 2022 are shifting into lesser headwinds or even tailwinds for markets, according to UBS Global Wealth Management (GWM). This includes peaking US rates, improving energy prices and a turnaround in China’s growth due to its reopening.
While the Swiss bank describes 2023 as a «year of inflection», it is not ready to advise investors to be fully risk-on in markets.
Pricing in a Recession
According to Eva Lee, UBS GWM chief investment office’s head of Greater China equities, one of the main concerns preventing a more optimistic view is that global markets like the US currently have not priced in lower earnings despite expectations of a recession.
«We are not calling 2023 a bull market year,» Lee said at a recent briefing attended by finews.asia, preferring instead to wait for markets to digest the state of affairs in the new environment first.
Global Equities
As a result, UBS is advising investors to be more defensive in 2023, with a preference for value over growth. By markets, it is positive on the UK, due to its energy and international exposure, as well as Australia, due to commodity tailwinds from China’s reopening.
Within Asia, its most preferred markets are China, Thailand and the Philippines.
China Opportunity
On China, UBS notes that three major market concerns have been alleviated. This includes a path towards reopening, increasing measures to mitigate property risks and improvements in US-China relations.
In the short term, it is positive on immediate reopening beneficiaries, including consumer, pharmaceutical, internet, industrials and materials sectors. And in the medium term, it is positive on those that stand to gain from future policy direction such as industrial automation, electric vehicle and battery supply chain as well as renewable energy.
Bonds, Alts
Overall, UBS is more positive on fixed income compared to equities due to the less attractive outlook for the latter asset class and improved yields in the former, with a preference for investment grade bonds.
It is also positive on alternatives including hedge funds, in light of market volatility, and private equity, for attractive long-term returns.
«How are we positioned in the chief investment office? We say, hold your strategic positions and we don’t want you to go into cash. Within each category, we are defensively oriented [instead],» added head of global commodities and forex Dominic Schnider. «2023 will not be a bad year.»
