UBS: Global Equities Face Challenge Amid Slowing Economic Growth

Summary

  • UBS Group strategists predict a difficult time ahead for global equities currently near record highs.
  • The sustainability of significant revenue gains amidst a slowing economy growth environment is doubted.
  • The key concern is the earnings disappointments due to increased wages and the deferred effects of higher interest rates.
  • The MSCI World Index is near its all-time high but might face future hurdles.
  • Equities possess a 35% chance of increasing by 15% with certain conditions outlined by the strategists.
  • Regardless of region, strategists show the least confidence in Europe due to potential earnings risks.

UBS Group Strategists Predict Hard Times for Global Equities

UBS Group strategists envisage a difficult phase for global equities, presently transacting near their all-time peaks. They voice their apprehensions about the durability of substantial revenue increases in a decelerated economic growth environment, labelling this as a “highly unusual” mismatch in their latest Monday note.

Earnings Disappointments: A Potential Threat

The main apprehension stems from the possibility of earnings letdowns, greatly attributed to a mix of escalating wages and the postponed impacts of elevated interest rates. These elements might pose a serious threat to profit margins across a variety of sectors.

The worry leans towards the possibility that as economic evolution stagnates, companies’ capacity to maintain high revenue growth becomes increasingly suspect, particularly in a scenario with mounting operating costs.

MSCI World Index Highlights

Currently just below its zenith is the MSCI World Index, representative of developed-market stocks and significantly influenced by high-performing tech corporations. However, the perspective from UBS strategists specifies possible future hurdles.

The prediction anticipates a 35% likelihood of equities surging past 15% driven by Gen AI, stylised market bubbles, or a rapid decrease in US wage growth sans a significant hike in unemployment.

Regional Analyses: Europe Least Bullish

Taking into consideration diverse regions, analysts exhibit minimal optimism about Europe. Despite being inexpensive with an improving relative economic momentum, being in the earlier stages of the easing cycle, and having positive catalysts such as China easing, weak dollar, and Fed cuts, still, Europe does not appeal to them.

The strategists make a point to mention their favouring of Japan (unhedged) due to the ongoing corporate changes and a generational shift into real assets not being reflected in valuations.

The UK presents itself as an extraordinarily low-priced defensive market. Europe emerges as the least preferred region due to the increased risk in earnings. The US is not as defensive as usual because of the evaluation, GDP slowdown, and margin risks higher than global markets.

Uncertainties in global equities, led by increased costs and slower growth, could have implications for forex traders, particularly those focused on assets tied to the MSCI World Index or regional equities.

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