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UBS, the Swiss banking giant has removed the shares of Bank of Cyprus from its recommended list of top investments. “The removal of Bank of Cyprus reflects our strategy move to reduce the financials overweight,” said UBS analysts in the latest edition of UBS Investor’s guide.
Apart from investors’ concerns on the financial sector, hawkish central banks and ever rising energy prices depressed the sentiment of investors and consumers alike. “We find that the overall investment environment has deteriorated significantly and recommend reducing the exposure to equities,” say UBS analysts.
Equity markets have suffered over the past month due to further negative news from the financial sector, but even more due to rising inflation risk and the hawkish reaction of central banks. While the recent correction in equities brought prices to attractive valuation levels, UBS caution firmly against seeing this as a buying signal at this
juncture. “We think that investors will increasingly shift their focus from the housing and credit crises to the real economic fallout. During this adjustment, the US is our preferred equity market as it is more defensive. In contrast, we find valuation for emerging markets stretched compared to developed markets, with earnings growth expectations also looking too optimistic, in our view. Hence, we caution from further investments in emerging markets, say UBS analysts.
At this point, investors should take advantage of attractive fixed income markets in the developed countries. UBS expect major central banks to refrain from hiking interest rates as their economies show further signs of weakness. As a result, government bond yields should stay at current levels, or even decline somewhat. UBS find fixed income markets in the UK, the Eurozone and Australia most attractive and recommend slightly longer-dated bonds there.
However, investors should hedge their currency exposure in these markets. For investors with the ability to invest in corporate bonds, UBS recommend to add some credit risk, as they find good value in the corporate bond market segment.
Commodity prices have continued to surge in recent months, despite more signs of a decelerating global economy. Over the medium to longer term, UBS think the divergence
between declining global growth and rising commodity prices is unsustainable, and therefore maintain their cautious stance for the asset class. For listed real estate, UBS maintain neutral position.
