- UBS Wealth Management expects that the strictest coronavirus-related restrictions in Europe and the US will start to be lifted by mid-May.
- The $1.4 trillion investor also expects that fiscal and monetary stimulus will avert a prolonged downturn.
- UBS listed five ways investors can start to prepare for the recovery.
- Click here for more BI Prime stories.
The world’s largest wealth manager expects a speedy recovery from the disruptions caused by the coronavirus pandemic.
UBS Wealth Management, which oversees $1.4 trillion in assets, is taking its cue from data out of Italy and China that show slowing rates of new infections. Those two countries were the worst affected by the outbreak until Thursday, when the number of US infections surpassed China’s count.
“Our central scenario sees new infection rates in Europe and the US peaking around mid-April and the most severe restrictions start to be lifted from mid-May,” Mark Haefele, the chief investment officer of global wealth management at UBS, said in a client note on Thursday.
UBS anticipates that the $2 trillion stimulus package being finalized in Congress will bolster the stateside economy, while the European Central Bank’s bond-buying program will be effective. The firm also expects that coordinated support from the fiscal and monetary sides will prevent a lasting downturn — and the economy will gradually recover as from the fourth quarter.
For this scenario to play out, there needs to be more evidence of coronavirus-curve flattening within the next week in Europe and within the next two weeks in the US, Haefele said. But it will take hard work: the US is still at the beginning phases of the outbreak when infections surge, and its population is larger and denser than Italy’s.
The economic data for the next few months will lay bare the devastating toll of enforced social distancing on people and businesses. However, investors can start looking further ahead to the recovery and preparing their portfolios accordingly, Haefele said.
Listed below are five ways to do just that. All the quotes are attributable to Haefele.
1. Credit looks attractively priced: “With US high yield spreads over 1,000bps, entering the asset class at these levels has been attractive historically — over the course of the next year, investors in 18 out of 20 instances have made money, with a median return of 28%.
“We see particular opportunities in green bonds, which we believe will exhibit lower volatility and smaller drawdowns compared to non-green bonds during periods of market stress.”
2. Look for oversold companies: “In the US, we suggest focusing on high-quality companies that can weather continued volatility but are also positioned for upside if markets experience a more durable recovery in the communication services and tech area.”
3. Look for resilient stocks and long-term winners: “We also see particular opportunity in those stocks with earnings relatively resilient to our virus scenarios, like those involved in technology disruption including the 5G rollout in Asia.”
4. Use higher volatility to position for a continued rebound: “One way to approach this, for investors who can use options, is by using today’s elevated volatility to sell out-of-the-money put options, and use the proceeds to buy closer-to-the-money call options. The net result is that investors retain most of the upside exposure for when markets rebound, and are set up to buy on dips on equities if markets fall further.”
5. Take advantage of an undervalued pound: “From an economic perspective, we see little reason for the pound to remain at its current deeply undervalued territory. We think the spike in the US dollar has come from purely technical reasons and is self-accelerating as investors have to reduce leverage across all assets.”
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