UBS recommends not to bet only on the US rally. How to protect the portfolio?

Relying only on the growth of the U.S. market is risky, UBS warned. The bank advised investors to diversify their portfolios and pay attention to Asian shares, investment grade bonds and gold. According to analysts, this will help reduce the impact of possible market fluctuations and geopolitical risks, as well as increase the stability of portfolios in the coming year.

Diversification will be the key to building more sustainable portfolios over the next 12 months, according to Swiss bank UBS. Its analysts urged investors not to rely solely on the rally in the U.S. stock market and to consider investments in selected Asian markets, highly rated bonds and gold, CNBC reported. With valuations of some U.S. tech companies looking overvalued and geopolitical risks persisting, UBS predicts this allocation will help protect against potential spikes in volatility.

According to the bank's strategists, the most interesting areas for investment in Asian equities are China and Japan. UBS sees China's technology sector as a long-term bet that will be supported by Beijing's policy of promoting national innovation, technological autonomy and industrial modernization. "We expect the MSCI China index could grow by double digits over the next 12 months," UBS said in a commentary cited by CNBC.

Since the beginning of the year, the index has already added more than 35%, while the U.S. broad market index S&P 500 rose about 15%. China's rally is supported by favorable liquidity in the economy and the growing interest of retail investors, who are transferring funds from deposits to stocks, despite the ongoing tensions between Beijing and Washington, CNBC writes.

Japan may get a boost from the policy of the new Prime Minister Sanae Takaichi, focused on stimulating economic growth, reforming the corporate sector and improving structural indicators, the TV channel notes. According to UBS, the greatest potential has sectors focused on the domestic market - infrastructure, technology and national security. Japan's main stock index Nikkei 225 since the beginning of the year rose by more than 25%, setting a record in trading on October 27 - it first exceeded the mark of 50,000 points.

- UBS recommends increasing the share of high-quality bonds, especially investment-grade U.S. bonds and Treasuries. According to the bank, they remain attractive, even despite a moderate decline this year. The yield on 10-year U.S. Treasuries has fallen by about 58 basis points since the beginning of the year, and UBS expects a further gradual decline. The bank's analysts note that highly rated bonds provide an optimal risk-return ratio: they tend to perform better during market corrections while maintaining stable returns at current levels.

"We expect such bonds to strengthen if concerns about the health of the U.S. economy or the sustainability of the rally driven by investments in artificial intelligence intensify," UBS strategists wrote.

- Gold remains a key element of UBS's sustainability strategy and is considered by the bank as an effective defense against political and economic shocks, CNBC points out. Despite market fluctuations, analysts still expect further growth in the price of this metal against the background of continuing global uncertainty.

Last week, gold suffered its sharpest one-day drop since 2013, and in trading on October 27, it fell 2.5% to trade close to the $4000 mark. According to UBS, the decline is a healthy consolidation and not a sign of a reversal. The bank expects the gold price to end at $4200 an ounce, but expects it to rise to $4700 if geopolitical risks intensify or if the U.S. budget problems worsen. UBS says gold will be further supported by lower real interest rates, a weaker dollar and concerns over sovereign debt, which is likely to attract new investment in the safe haven asset.

This article was AI-translated and verified by a human editor