For investors, uncertainty can be a
strong impetus to retreat to perceived “safe havens.” However, in today’s
financial markets, there’s no longer such a thing as true “safe havens.”
Moreover, if investors are able to look past these uncertain events in a broader
context, they will see significant long-term opportunities, according to the
Chief Investment Office Wealth Management Research (CIO WMR) in the latest UBS
House View: Investing through uncertainty.
Russia
and Crimea—where uncertainty can yield opportunity
While recent volatility of events
in the Ukraine region has the potential for devastating effects on energy
supply and demand in the area, and the broader Eurozone economy, CIO WMR
believes that significant escalation in this conflict is unlikely, given the
strong mutual dependence on oil and gas commerce between the West and Russia.
One long-term opportunity that could emerge for investors is in Russian
equities, which are trading more than 10% lower in March than in February 2014.
CIO WMR believes the strongest near-term opportunities, however, are in
reducing holdings in traditional “safe havens” such as the Swiss franc,
Japanese yen and high-grade bonds.
U.S.—fundamentals
remain strong amid lack of clarity
While it’s expected that the Fed’s
tapering measures will continue, more uncertain is the potential rise of
interest rates. This would be negative for the bond market but positive for the
U.S. dollar. Nevertheless, the impact on equities and the broader economy would
be more nuanced due to the overall strength of the U.S. economy, particularly
because of the forces driving energy independence in North America. Between
2007 and 2013, employment in U.S. oil and gas rose 40% with many U.S.-based
manufacturing executives considering reshoring production to the United States.
CIO WMR, therefore, recommends U.S. equities and credit in capitalizing on this
growth as well as the U.S. dollar on the currency front.
China—gradual
embrace of the free market offsets fears of slower growth
While China’s rapid rise to the
second largest economy in the world has been nothing short of remarkable, the
drivers of its growth today are somewhat in question. For now, China appears to
be countering these measures not through actions by the state but through more
openness to market-driven forces. For instance, CIO WMR believes while there is
considerable uncertainty in resources in heavy industry, the liberalization of
capital markets and energy prices should benefit brokerages and companies
helping to improve energy efficiency.
CIO WMR also believes that future
technological development holds significant opportunities for investors with
improvements in mobile technology and advancement in robotics continuing to
impact labor productivity and efficiency, as well as contributing .5%-.7% to
global growth over the next decade.
To understand more about how these
trends may impact your individual investments and strategy for the year,
connect with your UBS Financial Advisor
or find a UBS Financial Advisor.
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