The Lexington Group Tokyo New York Asia Financial Services: Capitalize Broader Growth
Posted Apr 14 2014 3:13am
Looking past uncertainties in Russia, the U.S. and China to capitalize on broader growth
For investors, uncertainty can be a strong impetus to retreat to perceived “safe havens.” However, in today’s financial markets, there’s no longer such a thing as true “safe havens.” Moreover, if investors are able to look past these uncertain events in a broader context, they will see significant long-term opportunities, according to the Chief Investment Office Wealth Management Research (CIO WMR) in the latest UBS House View: Investing through uncertainty.
Russia and Crimea—where uncertainty can yield opportunity
While recent volatility of events in the Ukraine region has the potential for devastating effects on energy supply and demand in the area, and the broader eurozone economy, CIO WMR believes that significant escalation in this conflict is unlikely, given the strong mutual dependence on oil and gas commerce between the West and Russia. One long-term opportunity that could emerge for investors is in Russian equities, which are trading more than 10% lower in March than in February 2014. CIO WMR believes the strongest near-term opportunities, however, are in reducing holdings in traditional “safe havens” such as the Swiss franc, Japanese yen and high-grade bonds.
U.S.—fundamentals remain strong amid lack of clarity
While it’s expected that the Fed’s tapering measures will continue, more uncertain is the potential rise of interest rates. This would be negative for the bond market but positive for the U.S. dollar. Nevertheless, the impact on equities and the broader economy would be more nuanced due to the overall strength of the U.S. economy, particularly because of the forces driving energy independence in North America. Between 2007 and 2013, employment in U.S. oil and gas rose 40% with many U.S.-based manufacturing executives considering reshoring production to the United States. CIO WMR, therefore, recommends U.S. equities and credit in capitalizing on this growth as well as the U.S. dollar on the currency front.
China—gradual embrace of the free market offsets fears of slower growth
While China’s rapid rise to the second largest economy in the world has been nothing short of remarkable, the drivers of its growth today are somewhat in question. For now, China appears to be countering these measures not through actions by the state but through more openness to market-driven forces. For instance, CIO WMR believes while there is considerable uncertainty in resources in heavy industry, the liberalization of capital markets and energy prices should benefit brokerages and companies helping to improve energy efficiency.
CIO WMR also believes that future technological development holds significant opportunities for investors with improvements in mobile technology and advancement in robotics continuing to impact labor productivity and efficiency, as well as contributing .5%-.7% to global growth over the next decade.
To understand more about how these trends may impact your individual investments and strategy for the year, connect with your UBS Financial Advisor or find a UBS Financial Advisor.