UBP is increasing its allocation to more defensive areas in light of recent market headwinds, the Swiss private bank said in its most recent house view.
UBP said that it upgraded its sector ratings on both utilities and healthcare to 3/5 from 4/5, both sectors that are viewed as bond proxies and relatively immune from any economic slowdown.
UBP has maintained its 4/5 rating on technology, which is a sector which continues to be supported by long-term structural growth, it noted.
Earlier this month, equities markets globally fell sharply following the unwinding of the Japanese yen carry trade and underwhelming economic data in the US.
Japanese equities and the Magnificent 7 were caught in the crosshairs, down 20.6% and 9% respectively over 1-5 August.
In light of the recent sell-off, UBP downgraded its conviction level on Japanese equities from 4/5 to 3/5 due to near-term uncertainty and potential yen strength.
Although in the case of Japanese equities, the bounce back has been almost as sudden, UBP strikes a cautious note about equities due to ongoing headwinds such as geopolitical tensions and slowing economic growth.
“We are not buyers of the current equity market dip and would use any technical rebound to reposition portfolios to more defensive areas of the market consisting of companies with elevated revenue and earnings visibility,” it said.
Regarding fixed income, UBP has maintained the stance it adopted in June to enhance portfolio carry. These changes included increasing exposure to high-yield bonds, additional tier 1 bonds of major European banks and emerging market debt.
The bank continues to prioritise investment grade bonds over government bonds, while maintaining a relatively short duration of around three years.
“We advise against chasing the recent downward move in yields, favouring shorter-dated maturities, while remaining vigilant for opportunities to further increase our high-yield exposure,” UBP said.
