A key theme in global capital markets has been the disparity between macroeconomic challenges and sector-specific growth, notably in AI. Despite persistent macro risks, such as the US-Iran war, threats to oil supplies, inflation, rising government fiscal deficits, and rate volatility, some sectors continue to outperform.<\/p>\n
\u201cThis disconnect highlights the need for diversification and portfolio resilience,\u201d Jade Fu, head of global multi-asset portfolio management, Apac, UBS Asset Management, told a media briefing at last week\u2019s UBS Asian Investment Conference in Hong Kong.<\/p>\n
However, the traditional 60\/40 portfolio is insufficient due to the weakening negative correlation between equities and bonds and higher volatility.<\/p>\n
\u201cInstead, investors should look beyond traditional allocations, diversifying across and within asset classes, including alternatives,\u201d Fu said.<\/p>\n
But, as its recent price slide demonstrated, single alternatives such as gold may not provide effective diversification. In fact, in March, only the US dollar and Chinese government bonds offered meaningful diversification, according to Fu.<\/p>\n
Moreover, amid the exuberant rally in AI stocks, which Fu said is hard to resist, there are multiple sub-themes offering distinct opportunities.<\/p>\n
\u201cExtracting alpha has become more challenging, making deeper analysis and thematic investing essential. Market leadership in AI has shifted several times this year, and simply investing in broad technology or well-known AI names is no longer sufficient,\u201d she said.<\/p>\n
UBS AM\u2019s multi-asset team has adapted by shortening investment horizons and implementing options strategies to improve skew and convexity, allowing continued participation in AI while managing downside risk.<\/p>\n
\u201cThis more granular, thematic approach is increasingly necessary. Our diversification across geographies, sectors, and themes complements the bottom-up strategies of our underlying managers. The multi-asset industry is evolving, and ongoing innovation in portfolio construction is critical,\u201d Fu explained.<\/p>\n
War shock prompts diversification<\/p>\n
Nevertheless, the conflict in Iran has introduced significant geopolitical risk, affected commodity markets, and driven oil prices higher. Markets initially expected a brief disruption, but the prolonged closure of the Strait of Hormuz intensified market reactions, especially in fixed income.<\/p>\n
\u201cCompared with previous shocks such as Liberation Day, which had a stronger impact on US Treasuries, this event has reinforced the trend of diversification away from US dollar assets,\u201d said Massimiliano Castelli, head of strategy and advice, sovereign institutions, UBS AM.<\/p>\n
While the recent conflict briefly boosted demand for US dollar-denominated safe assets, Castelli expects the dollar to remain weak once the Middle East crisis stabilises, providing opportunities in non-dollar assets.<\/p>\n
\u201cWe see a positive outlook for emerging markets, supported by macro stability and improved corporate profitability. With current allocations low and recent outflows further reducing exposure, there is meaningful potential for capital to return to both fixed income and equities in these regions,\u201d he said.<\/p>\n
Matthias Dettwiler, global head of active fixed income, UBS AM also noted the shift in attitudes among investors compared with their relative optimism before March.<\/p>\n
Inflation risks are subsiding<\/p>\n
\u201cAt the start of the year, 25 central banks were expected to ease policy, leading to a preference for longer-duration assets,\u201d he said. The continued conflict, however, raised concerns about energy and commodity shortages, prompting a reassessment.<\/p>\n
In the US, rising real rates reflect investor focus on persistent deficits and debt-to-GDP ratios. \u201cWhile these issues are not new, they are receiving increased attention,\u201d said Dettwiler.<\/p>\n
On the other hand, he believes most inflation risk is already priced into US, European, Australian, and New Zealand markets, and therefore favours exposure to the front end of the yield curve.<\/p>\n
In credit, spreads are not historically wide, but fundamentals are strong. \u201cWhen spreads widen, buying interest quickly returns, and markets can absorb significant new issuance,\u201d said Dettwiler.<\/p>\n
Companies generally have robust cash flows and balance sheets, and technical factors are supportive. Absolute yields of 5\u20136% are attracting investors to relatively safe assets.<\/p>\n
\u201cWhile selectivity is warranted in some sectors, overall market stability and attractive yields are drawing both private and professional investors,\u201d he said.<\/p>\n
In short, most inflation risk appears priced in, and credit fundamentals remain robust, while diversification\u2014across regions, sectors, and themes\u2014is essential given evolving macro and geopolitical risks.<\/p>\n
Emerging markets, particularly those with improving fundamentals, remain underrepresented in global portfolios and present long-term opportunities. In particular, UBS AM believes that China now presents an \u201calpha opportunity, especially in technology and AI.<\/p>\n
However, portfolio resilience and innovation in asset allocation are more important than ever, the panel concluded.<\/p>\n","protected":false},"excerpt":{"rendered":"A key theme in global capital markets has been the disparity between macroeconomic challenges and sector-specific growth, notably…\n","protected":false},"author":2,"featured_media":77365,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[129],"tags":[2252,241,40335,40336,40337,40338,223,19574],"class_list":["post-77364","post","type-post","status-publish","format-standard","has-post-thumbnail","category-ubs","tag-ai","tag-alternatives","tag-asian-investment-conference","tag-jade-fu","tag-massimiliano-castelli","tag-matthias-dettwiler","tag-ubs","tag-ubs-asset-management"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@ch\/116690021599281806","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/posts\/77364","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/comments?post=77364"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/posts\/77364\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/media\/77365"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/media?parent=77364"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/categories?post=77364"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/tags?post=77364"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}