By Anisha Sircar
March 24 (Reuters) - U.S. equity markets have limited
upside in 2023 while investment-grade (IG) bonds from the
country and Asia look appealing as the ongoing turmoil in the
financial sector complicates the global growth outlook,
according to fund managers.
UBS changed its asset allocation strategy last week to
"least preferred" on U.S. equities and financials, and "most
preferred" on U.S. IG bonds, said Adrian Zuercher, head of
global asset allocation at UBS Global Wealth Management's chief
investment office.
"The U.S. equities and growth stocks' outlook is challenged
due to high valuations, declining earnings, and latent risks
from rate hikes," Zuercher told the Reuters Global Markets Forum
(GMF) on Friday.
UBS has a base case of a 6%-7% return for U.S. IG bonds over
the next 12 months, and an upside case of double-digit returns
if the Fed cuts rates by 100 bps this year, he said.
U.S. markets have seesawed as investors weigh the Federal
Reserve's rate decision on Wednesday and a banking crisis, which
began with the failures of SVB Financial Group and
Signature Bank. Nigel Foo, head of fixed income at First Sentier Investors,
said he did not expect the Fed to hikes interest rates
aggressively from here.
As the banking crisis has been unfolding, "we've taken the
opportunity to increase our U.S. duration," said Foo, whose firm
had over $146 billion in assets under management in assets as of
December 2022.
Foo also said Asian banks and corporates continue to have
strong fundamentals, and he expects Asian IG bonds, with yields
close to 6%, along with Chinese and Indonesian bond spreads to
perform well this year.
Zuercher said he was positive on emerging market equities,
including Chinese and Asian semiconductor stocks, and select
European themes including German equities.
"We see near 10% upside for Asia ex-Japan by year-end," he
said, supported by bottoming downgrades, fading dollar strength,
and an expected 12% year-on-year earnings rebound in the second
half of 2023.
"Asian equity valuations remain well below that of global
equities," Zuercher added.
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(Reporting by Anisha Sircar in Bengaluru; Editing by Divya
Chowdhury and Vinay Dwivedi)
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