UBS: Make the most of investment opportunities in 2019

"The aging cycle, reduced support from monetary policy, higher market volatility, trade wars, Brexit, European political risk, higher US funding rates and a stronger US dollar – present a stark quandary to investors."

"In this environment genuinely diversified risk premia should remain the bedrock of investors' portfolios. Flexibility and staying nimble are important to make the most of the opportunities as they ebb and flow across and within asset classes" said Suni Harford, Head of Investments, UBS Asset Management.

In the report, UBS-AM highlights the following opportunities:

Asset Allocation

Against a backdrop of moderating but still above-trend global growth and generally strong corporate earnings, we have retained a positive view of global equities going into 2019. We believe recent concerns about tightening US monetary policy and rising US bond yields are overdone.

"Equity valuations are attractive when compared to either government or investment grade corporate bonds.

"Nonetheless, we believe that returns from equities are likely to be more muted on a risk-adjusted basis. As the cycle matures, the range of potential growth, inflation and interest rate outcomes is broadening. At a very simple level, this increasing degree of uncertainty is likely to result in an increase in the overall volatility for all asset classes" said Ryan Primmer, Head of Investment Solutions, UBS Asset Management.

China

While 2018 has been a challenging year, we believe recent policy developments constitute a turning point for China’s stock markets and that the current environment presents investors with an opportunity to add to their China equity allocations.

"There have been significant changes in domestic policy, such as social security tax and taxes on private equity investments, which are part of a concerted effort to step up support to the economy. These announcements have not yet been fully understood or absorbed by the market but, in time, we believe they will positively impact investor sentiment going into 2019.

"Significantly, the change in policy attitude, and the increased possibility of a resolution to trade issues, means that systemic risk in the Chinese equity market has died away significantly. As such, we have turned more positive on the outlook for China equities where current valuation levels are attractive and we see many opportunities to invest in" said Bin Shi, Head of China Equities, UBS Asset Management.

Emerging markets

We believe current entry points across EM asset classes present opportunities for patient investors in the long-term, despite headwinds bringing volatility in the short-term.

"EM assets look attractively valued. Looking at current account balances and net external debt levels we maintain our view that most EM countries are fundamentally healthy. At the company level, we believe profitability and earnings growth prospects remain generally robust. Our analysis shows that large opportunities exist in various sectors, including consumer, internet/e-commerce, and financials" said Geoffrey Wong, Head of Emerging Markets and Asia-Pacific Equities, UBS Asset Management.

Sustainable investment and stewardship

Panorama also focuses on sustainability – a key investment trends we see accelerating further in 2019.

"Climate change is one of the most significant and yet misunderstood risks that companies and financial organizations face today. The transition to a 2oC target will affect all business sectors and industries across the globe. Investors who simply exclude the high-carbon sector will be unable to exert any influence on the means and timing of such a transition. An alternative, and arguably more responsible approach, is for investors to mobilize behind worldwide efforts to reduce carbon reliance. We see this trend accelerating into 2019 and beyond" said Ian Ashment, Head of Systematic and Index Investments, UBS Asset Management.

"Globally, there has been a growing need for greater insights into sustainability and long-term investing and this has seen the business case for stewardship come to prominence. Stewardship has been proven to favourably impact business outcomes. The reason for this is clear. At its core, stewardship equates to responsible ownership with corporate engagement and proxy voting activities playing a key role in sustainability integration. This trend should only continue to gain traction in 2019" said Christopher Greenwald, Head of SI Research, Sustainable and Impact Investing, UBS Asset Management.