UBS is urging investors to build portfolios that can withstand a range of outcomes, arguing that preparation matters more than prediction in an environment of heightened policy and geopolitical uncertainty.
In its latest Global Risk Radar, the bank's chief investment office set out strategies for downside, base and upside scenarios, rather than attempting to forecast which will play out.
Its base case, given a 60% probability, is for equities to move higher over the next 12 months.
UBS expects the S&P 500 to reach 8,200 by June 2027, supported by continued strength in artificial intelligence capital expenditure, a resilient US economy, ongoing fiscal spending and strong credit creation.
The bank expects traffic through the Strait of Hormuz to resume gradually, though it may take two to three months to approach pre-crisis levels.
Brent crude should continue to trade above its pre-crisis level for the rest of the year.
UBS thinks economic growth will dip below trend this year.
It judges that US output could largely weather the recent energy shock and still grow at or just below its 2% trend rate, while oil-importing countries in Europe and Asia face some weakness.
Headline inflation is likely to rise in the near term, but expectations should remain anchored around central bank targets.
The bank expects the European Central Bank to raise rates in 2026, while the Federal Reserve is likely to resume cutting only in early 2027.
UBS attaches a 20% probability to a bull case, in which the Strait of Hormuz reopens quickly and oil prices stabilise below $80 a barrel.
In that scenario, stronger investment spending and AI adoption could push major equity indices to double-digit returns for the balance of the year.
The bank assigns another 20% to a bear case.
This would involve severe disruption to oil flows persisting for three to six months, or widespread destruction of Middle East energy infrastructure, sending Brent spiking towards $150 to $200 a barrel before demand destruction pulls it back.
A further risk is that investors lose confidence in the durability of AI capital expenditure or in the economy's ability to convert it into profit, which could trigger double-digit equity drawdowns.
To guard against the downside, UBS suggests capital preservation strategies, rebalancing towards high-quality government and investment-grade bonds, favouring shorter-duration debt, and adding alternatives and commodities.
In the base case, it recommends locking in yields through structured strategies such as reverse convertibles and reallocating excess cash into its highest-conviction ideas.
For an upside scenario, the bank points to the judicious use of leverage and upside-focused structured products, alongside greater exposure to growth-oriented equities.
Across all three, UBS stresses the importance of regular review and rebalancing to keep portfolios aligned with investors' risk profiles.
