UBS Wealth Management has a tactical overweight to equities and prefers US equities relative to high-grade bonds.
The prevailing low interest rate environment makes bond investments less attractive than selective equities, such as US equities, said Louisa Fok (pictured), executive director in UBS Wealth Management’s chief investment office.
“Stable earnings growth of US-listed companies have made US equities an attractive asset class in the second half of the year,” Fok said at a media briefing in Hong Kong.
The bank continues to expect US corporates to grow earnings by 3% this year, despite the UK’s vote to leave the European Union. US companies generate around 3% of their revenues from the UK and 15% from the European Union, so the impact is not really substantial, she said.
Within US equities, Fok said she likes technology stocks, as the firm expects IT budgets to rise over the next 12 months.
Equities look favourable over the remainder of 2016 with global government bonds likely to fare worse, she said.
The initial sell-off in risky assets in 2016 has led to fund flows into fixed income assets, such as bonds, during the first half of the year, while policy support by global central banks has also provided support to global bonds relative to equities, she said.
She believes that there is room for the US dollar to rebound in the short-term, on expectations that the Federal Reserve is going to hike interest rates later this year.
"Uncertainties over Brexit would also continue to support the dollar, following the sharp fall in the sterling," she said.
The FTSE America Government Bond Index has been outperforming the S&P 500 Index since the start of 2016, according to FE Analytics.