Global wealth manager UBS has published its latest outlook report, citing climate change and disruptive technologies as the most significant opportunity for investors over the next decade.
In its Year Ahead 2022: A year of discovery outlook report, UBS pointed towards opportunities in the net-zero carbon transition and the so-called ABC of disruptive innovation; artificial intelligence, big data, and cybersecurity.
Also in the report are predictions on major themes for the global economy, along with their likely impact on investment markets following the pandemic.
UBS believes that 2022 will reset the “new normal”. The year is expected to present as two halves; six months of faster economic growth and high price inflation, followed by six months of lower growth and declining inflation.
In 2022, UBS is forecasting that central banks will scale back their emergency monetary support as the impact of the pandemic recedes.
Despite this expectation for tighter monetary policy, UBS does not think this will restrict positive returns for global equity markets.
For the year ahead, UBS sees opportunities for investors who are buying “winners of global growth”, with “opportunities in healthcare”, “seeking unconventional yield”, and “positioning for a stronger US dollar.”
Mark Haefele, chief investment officer at UBS Global Wealth Management, said:
“We start the year with a positive stance on the ‘winners from global growth’, including Eurozone equities, and on the US dollar.”
Haefele went on to say that economic growth is likely to stay above trend during the first half of next year, which could benefit cyclicals, including the eurozone and Japanese equities, US mid-caps, global financials, commodities, and energy stocks.
While economic growth is likely to remain strong at the start of next year, any slowdown during 2022 would start to favour the more defensive parts of the market, including healthcare.
UBS believes investors could benefit from unconventional yield opportunities because interest rates, bond yields and credit spreads remain low by historical standards. Such unconventional yield opportunities include US senior loans, synthetic credit, private credit, and dividend-paying stocks, which the report says all look attractive.
The report also suggests, assuming the US Federal Reserve gradually tapers its monetary stimulus, that the US dollar will be in a stronger position relative to currencies that are bound to looser monetary policies. Examples of currencies likely to become weaker relative to the US dollar are the euro, yen and Swiss franc.
Solita Marcelli, chief investment officer Americas for UBS Global Wealth Management, said:
“Inflation should start to fall in second quarter, our base case is for inflation to normalise but there is uncertainty. Market sentiment could overreact to incoming data, but from our perspective, the Fed would prefer a loser policy based on incoming signals. We don’t anticipate Fed hiking rates until 2023.”
Looking at bond markets, UBS notes that Asia high yield offers attractive yields. The report also confirms it has a preference for sustainable global investments for private clients.
UBS believes investors will experience a world experiencing more technological disruption, ageing populations, monetary and fiscal coordination, and de-globalisation in the decade ahead.
There are also likely to be more political calls to redistribute wealth and action on the environment.
Our experience of the pandemic has accelerated progress for many of these themes, but also created a great deal of uncertainty along with compelling long-term investment opportunities.
Haefele said: “Over the longer-term, we see opportunities in disruptive technologies, the net-zero carbon transition, and in the power of alternatives to unlock return and manage volatility.”
According to UBS, total revenues from “ABC technologies” (artificial intelligence, big data, and cybersecurity) are forecast to grow from $384 billion in 2020 to $620 billion in 2025.
Investors will need to look beyond the largest tech companies and instead focus on mid-cap companies to capture growth from these themes, investing in what could become “the next big thing” in the space.
Marcelli said: “The net-zero carbon transition looks set to prove to be one of the most consequential investment trends of the coming decade. Attaining net-zero is expected to require global investment in renewables of $50tn for each decade until 2050, with 50% of emission reductions needing to come from underdeveloped technologies. This creates opportunity across greentech, clean air and carbon reduction solutions, and carbon trading strategies.”