Analysts at UBS argue investors should use the latest rebound to de-risk and diversify rather than chase the market, saying the bounce after Donald Trump delayed threatened action against Iranian energy infrastructure does not remove the broader risk of elevated oil prices, weaker growth and fresh volatility.
The key portfolio call is a rotation away from markets UBS sees as more exposed to an energy shock. It downgrades European, Eurozone and Indian equities to Neutral, while upgrading Swiss equities and the European healthcare sector to Attractive.
The bank says Europe remains vulnerable because higher oil and gas prices could hit manufacturing and consumer confidence, while India is especially exposed as it imports 88% of its oil and routes a significant share through the Strait of Hormuz.
UBS also recommends adding short-duration quality bonds, arguing markets are overpricing near-term inflation and underestimating the medium-term growth hit that could ultimately bring rate cuts.
It says investors should also consider adding commodities, particularly oil and gold, as portfolio hedges.
On market moves, the note says the S&P 500 rose 1.1% on Monday, Brent crude fell 10.6% to US$100 a barrel, the Stoxx 600 ended 0.6% higher, and the 10-year Treasury yield slipped to 4.35%.
The market table on page 4 also shows Brent still up 64.9% year to date despite the one-day drop, underlining UBS’s view that energy remains the central macro risk.