(Bloomberg) -- It’s not yet time to position for a recession and investors should instead focus on adjusting asset allocation to surging inflation, according to UBS Global Wealth Management.
“Positioning portfolios for recession means deciding that the Fed will fail to win a game in which it ultimately controls nearly all the cards and sets nearly all the rules,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a monthly letter. “Many investors we speak to should do more to position for inflation — a clear and present fact — than recession, which is still only a future possibility.”
Global stock markets have been struggling this year as investors are grappling with fears of an outright recession and overly aggressive tightening by the Federal Reserve in response to surging inflation. The U.S. economy posted a surprise contraction at the start of the year, and French output unexpectedly stagnated, sounding a warning on the damage from soaring energy costs and worsening supply snarls.
Still, “it is not yet time to position for recession,” Haefele said. Instead, portfolios should be adjusted for an environment of slowing growth and high but moderating inflation, where broad equity markets will “finish the year higher than current levels.”
The house view of the Swiss wealth manager is that investors should tilt their equity exposure toward cheaper or so-called value shares, energy, and more defensive sectors, such as health care. Moreover, “commodities are attractive and an effective way to hedge further inflation and geopolitical risks,” said Haefele.
Finally, rising yields mean areas of value are appearing in fixed income, with UBS Wealth now removing its “least preferred stance” on both investment grade and high grade bonds.
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