UBS Global Wealth increases global equity exposure following ‘Red October’ sell-off

The firm had reduced its equity exposure in August due to escalating trade tensions between the US and China, but said the recent “disproportionate” correction has created buying opportunities in the asset class versus high grade bonds over the next six months.

‘Red October’ saw major losses across equity markets as a result of concerns around quantitative tightening and FAANG valuations, with the SP 500 suffering a monthly loss of 6.9%, its worst month since September 2011, while the MSCI All Country World index recorded its worst month since May 2012, dropping 7.6%.

Despite the magnitude of the falls, the firm does not see this correction as the start of a bear market and expects to see potential positive surprises in the near term. 

Caroline Simmons, deputy head of UBS Wealth’s UK investment office, pointed to a more “conciliatory” relationship between US President Donald Trump and Chinese President Xi Jinping in the build-up to the G20 Summit, as well as more accommodative policy from the Federal Reserve amid continued market volatility.

“While markets remain fragile, the recent sell-offs represent a buying opportunity,” she said.

“Even using our own cautious earnings estimates and factoring in the first rounds of US-China trade tariffs, valuations still look favourable, and there is certainly room for the market to move higher.”

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Simmons named four factors that signalled the bull market was not over; tightening labour markets, consumer consumption acceleration, domestic Eurozone economy holding up and the reducing risk of an oil price spike.

However, she also cautioned that the bull market is now in its late stages, and as such investors should expect higher volatility and lower returns from investments.

“We acknowledge that the bull is maturing, and this stage of the cycle is typically associated with both higher volatility and more modest scope for further gains,” Simmons said.

“But the value offered by global stocks justifies tolerating the potential for higher volatility.”

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