The world's largest wealth manager has turned bearish on stocks, fearing that the latest escalation of the trade fracas between the US and China poses a heightened threat to global markets.
UBS Wealth Management, which overseas $2.5 trillion (€2.25 trillion) for rich clients, has trimmed its core equity recommendation to an "underweight" position for the first time since the height of the euro zone crisis in 2012, on worries that the ongoing trade war and slowing global growth increase the risk of owning stocks.
The move was prompted by the announcement by US president Donald Trump of an increase in previously announced tariffs, wrote Mark Haefele, global chief investment officer for UBS's wealth management group, in a note distributed to clients late on Sunday. Underweight means that customers should cut exposures in their portfolios that span various classes of assets.
“It seems less and less likely that [the trade war] will de-escalate before the end of the year,” Mr Haefele said on Monday. “This latest round of tariffs increases the risk that global growth and manufacturing growth will slow.”
As the trade spat has unfolded this year global markets have tended to move sharply on tweets and headlines.
On Friday, Mr Trump ratcheted up tensions ahead of the weekend's G7 meeting in Biarritz by calling on US companies to "immediately start looking for an alternative to China". The statement triggered a sell-off that wiped 2.6 per cent from the US equity market as investors swapped stocks for safer assets such as government bonds.
Later on Friday, Mr Trump said the US would increase tariffs to 30 per cent from 25 per cent for $250 billion of Chinese goods from October 1st and boost a levy on an additional $300 billion of Chinese imports that includes toys and clothes to 15 per cent from 10 per cent. This second group of tariffs is due to come into effect in two parts on September 1st and December 15th.
On Monday, Mr Trump changed tack again in remarks at the G7 conference, praising China for making an effort to restart trade negotiations.
His comments buoyed European markets and helped stem a sharp decline in Asia. US stocks, too, were trading about 1 per cent higher by lunchtime in New York, while the yield on the 10-year Treasury bond was flat at about 1.53 per cent.
UBS believes the tariff war will not trigger a full-scale recession in the US, because of central bank easing and healthy consumer spending, which accounts for roughly 70 per cent of the economy.
But other strategists agreed that the ongoing skirmishes in the trade war were making it more difficult to take a bullish stance on stocks, which continue to trade at historically expensive levels.
"Sentiment is so fragile right now," said Candice Bangsund, portfolio manager for Fiera Capital. "The market is trading off...every headline and that is driving the risk-off behaviour." – Copyright The Financial Times Limited 2019