UBS, the world's leading global wealth manager, has revealed climate and disruptive technologies as the biggest money making opportunities in equities investment for the next decade.
In its 'Year Ahead 2022: A year of discovery' global outlook, published on Thursday, the investment bank said in the next 10 years, investors should seek opportunities in the net-zero carbon transition and the “ABC” of disruptive technologies – artificial intelligence, big data, and cybersecurity.
The report makes predictions on major themes in global economy and their likely impact on equities and bond markets in a post-pandemic world.
Next year will reset the "new normal", UBS (UBS) said, expecting a 2022 of two halves with high rates of economic growth and inflation in the first half, giving way to lower growth and inflation in the second.
Central banks will likely reduce their emergency monetary accommodation, as the economic effects of the pandemic increasingly subside. However, tighter policy is not expected to prevent positive equity market returns, the report said.
Its core recommendations for the year ahead include buying "winners of global growth", seeking "opportunities in healthcare", "seeking unconventional yield" and "positioning for a stronger US dollar".
“We start the year with a positive stance on the ‘winners from global growth’, including Eurozone equities, and on the US dollar," said Mark Haefele, chief investment officer at UBS Global Wealth Management.
Haefele said the US and Europe equity markets have been doing well in the first half of the year, with Japan also picking up, but emerging markets have been laggard.
He said economic growth will likely remain above trend for the first half of 2022, benefitting cyclicals, including eurozone and Japanese equities, US mid-caps, global financials, commodities, and energy stocks.
Although growth is set to be strong in early 2022, favouring cyclical sectors, a slowdown during the course of the year should start to favour more defensive parts of the market, such as healthcare.
Investors should also seek unconventional yield as interest rates, bond yields, and credit spreads remain low by historical standards. US senior loans, synthetic credit, private credit, and dividend-paying stocks, look attractive, the report said.
With the US Federal Reserve tapering – gradually decreasing purchasing of securities for stimulative purpose – and slowing global growth, the dollar will be in a stronger position relative to currencies bound to looser monetary policies, such as the euro, yen, and Swiss franc.
Recent data on US economy suggest the Fed may speed up their taper and raise rates before June.
"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," said Solita Marcelli, chief investment officer Americas for UBS Global Wealth Management.
Within bond markets Asia high yield offers attractive yields, and, heading into 2022, UBS maintains its preference for sustainable investments for private clients investing globally.
It said in the decade ahead, investors face a world that is experiencing increased technological disruption, ageing populations, monetary and fiscal coordination, and de-globalisation, as well as stronger political calls for wealth re-distribution and environmental action. The pandemic has accelerated the advancement of many of these themes, creating uncertainty, but also compelling long-term investment opportunities.
"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,” said Haefele.
UBS said the combined revenues of the “ABC technologies” (artificial intelligence, big data, and cybersecurity) are expected to grow from $384bn (£284bn) in 2020 to $620bn in 2025. Capturing growth in these areas will require investors to look beyond just mega-cap tech stocks and focus on mid-cap names that could prove to be “the next big thing”, as well as using private equity to gain exposure to early stage growth companies.
"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," said Marcelli.