- 2018 has been a challenging year for investors, at least compared to 2017.
- UBS has outlined four specific themes it expects will play out in the months ahead.
- It has offered its top trade ideas for stocks, currencies and fixed interest to capitalise on these themes.
Compared to last year, 2018 has proven to be a challenging year for investors.
Geopolitical tensions, tighter monetary policy settings and growth wobbles in Europe and China have all led to an increase in market volatility, making trades that looked so good earlier this year anything but.
Just ask anyone who was piling into emerging markets at the end of January, or those who were betting on the US dollar continuing to weaken — things can change, and fast.
However, volatility not only offers challenges but also opportunities for investors.
UBS’ global macro strategy team certainly thinks so, suggesting the changing macroeconomic landscape, and recent market moves, have provided a few tasty opportunities for traders and investors to ponder as we head towards 2019.
“Going forward, and with increasing evidence of China policy easing, global growth is likely to stabilise, with some rotation in the marginal growth impulse from the US towards the rest of the world,” it says.
“At the same time, the sharp acceleration in US inflation seen in Q1 should continue to abate.
“A global backdrop of solid growth and stable US back-end yields should continue to support risk assets.”
Along with an expectation for a stabilisation in global growth and ceiling on longer-dated sovereign bond yields, UBS says the risk-reward surrounding European politics, along with more challenging backdrop for emerging markets, are likely to remain the dominant investment themes in the months ahead.
So how to capitalise on those themes?
UBS has that covered too, offering its top trades across FX, interest rates and stocks for the remainder of the year.
Here they are:
“Our US equity strategists remain bullish, given solid earnings growth, still-favorable valuation, rising buybacks, and growing dividends,” it says.
“Back-end rates in the US are likely to remain stable, and we add positions in assets that are exposed to US growth.”
It also notes that many of its top trades are predicated on European growth fears easing.
“We expect this as the data rebounds from early-year distortions. In combination with markets already pricing much of the Fed cycle, this should boost EUR/USD and allow for some broader dollar weakness,” it says.
On those involving emerging markets, an area that has received plenty of attention in recent months given the carnage in some asset prices, it says the recent selloff now offers good carry income, especially in assets that benefit from solid balance sheets rather than those reliant on strong growth.
Some of the trades are more exotic than others, but there are plenty of ideas for investors, regardless of expertise.
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