UBS House View Monthly Letter

UBS maintains a constructive outlook on equity markets, forecasting higher prices through 2027 driven by AI and broader economic growth. Investors are cautioned to address portfolio concentration risks through diversification.

Key Takeaways

• 1.Equities are expected to trend higher over the next 12 months, supported by strong earnings growth and a resilient AI ecosystem.
• 2.Concentration risk in equity portfolios is increasing due to performance dispersion; diversification remains the primary recommendation.
• 3.Quality bonds offer an appealing risk-reward profile as market pricing for central bank rate hikes looks overly hawkish.

Table of Contents

• Onward and upward?
• Managing risks
• Concentration issues
• Asset allocation
• Staying on message
• Why we believe equities can still move higher
• Risk scenarios
• Loss of confidence in AI
• Weak delivery from the non-AI economy
• Higher financing costs for governments and companies
• Can equity markets absorb new issuance?
• Investment implications
• Diversify across equities
• Invest in transformational innovation
• Concentration risks in equity portfolios
• Consider capital preservation
• Broaden commodity exposure
• Lock in yields
• Diversify with alternatives
• Conclusion

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