Despite a strong market performance in the month of February, analysts on the streets are increasingly warning of a challenging macroeconomic environment in the months ahead for investors. In spite of the less-than-optimistic outlook, UBS believes that investors can still prosper with the right measures and investment strategies. Here are four top investment ideas for investors to orientate themselves against any impending bear market.
Investors Takeaway: 4 Top Investment Ideas To Orientate Against A Bear Market By UBS
- Staying Invested In Global Equities
Although UBS is expecting economic growth to slow, a full blown recession is not expected to occur. UBS recommends investors to stay invested but be prepared for portfolio volatility.
According to UBS, the slowdown in economic growth will lead to discounted valuations compared to the historical averages. Based on historical trend, the late economic cycle is a good time to be invested. According to UBS, the 12-month forward PE of global equities is around 14 times, which represents a ten percent discount to the 30-year average. The equity risk premium, which gauges the attractiveness of stocks versus bonds, is around six percent versus an average since 1991 of 3.4 percent.
- Ride Along With Secular Growth Themes
As UBS warns of slower earnings growth, investor should be selective with their choice of investments. UBS recommends investors to stay exposed to companies riding on secular growth trend, companies with high quality earnings capabilities or seeking oversold plays. Investors need to focus on companies that are exposed to secular growth or those with a track record of weathering downturns.
Secular trends riding on population growth, aging and urbanization in emerging markets are favoured by UBS. UBS’ current thematic picks for this investment strategy includes aggressive growth themes like fintech and silver spending. Some of these plays in the theme include small and medium sized companies, which have the potential to outperform.
- Diversify With Alternative Investments
Diversification will be a key investment theme that UBS recommends, given the socio-political risks at hand ranging from US-China trade talks to Brexit. UBS thinks that investors should diversify their portfolio across multiple countries, sectors and market drivers.
One recommended strategy is to focus on sustainable investing. The global trend of companies falling short of sustainability expectations will drive stronger demand for improved Environmental, Social and Governance (ESG) standards from regulators and the market. As such, sustainable investing will continue to be at the forefront of many large investors and activist investors.
With sustainable investing, companies’ value do not fluctuate across different economic cycles. Thus, investors do not have to worry about volatility for sustainable investing, compared to conventional strategies.
UBS recommends investors to seek ESG leaders who are demonstrating strong transparency and commitment in this aspect.
- Long Term Plays In EM Equities
According to UBS, limited long-term return potential will become more apparent as the year proceeds. Thus, to start the year right, UBS recommends investors to plan ahead with sufficient exposure to markets with long-term growth prospects. Within its coverage universe, UBS strongly recommends emerging market (EM) equities.
According to UBS, MSCI EM Value Index has been underperforming its growth counterpart since 2012. The MSCI EM Value Index is now trading at more than 50 percent discount to MSCI EM Growth Index’s on a 10-year average. In that aspect, UBS sees opportunities in EM markets like South Korea, Vietnam and China’s ‘Old Economy’.
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