Economists at UBS have revised their stance on global equities, highlighting recent economic and inflation data that has outperformed estimates. They also emphasize the robust growth in the US economy, which has lowered the likelihood of a recession. The brokerage has upgraded its rating on global equities from “least preferred” to “neutral,” with a particular preference for emerging markets over their US counterparts.
UBS holds the view that the possibility of a recession in the US has diminished. Citing the stronger-than-expected growth and economic data. The brokerage anticipates that global earnings will remain flat throughout this year. And then experience mid-single-digit growth on a global scale in the following year.
The unique nature of the current profit cycle is highlighted by UBS, which points out that rising inflation has contributed to nominal growth, while volumes have faced pressure. This dynamic has led to better-than-anticipated performance in nominal earnings.
Throughout this year, the MSCI All Country stock index has demonstrated resilience, recording a 10.2% increase. This comes after a significant 19.8% decline experienced in the previous year, 2022.
In terms of sector preferences, UBS has shifted its focus towards Energy over Materials. It has adjusted its view on Communications from “least preferred” to “neutral.”
While acknowledging positive earnings surprises in the US, UBS maintains its “least preferred” designation for the region due to high valuations. However, the brokerage has downgraded Australia to a “neutral” rating, reflecting the lack of improvement in the earnings outlook. It is expected that next year’s profit growth in Australia will take a negative trajectory.
UBS’s altered stance reflects the evolving economic landscape and the relative performance of global equities while acknowledging the varying factors that shape the investment landscape.