UBS

Hong Kong

20 July 2017: FOMO versus FOJI

– Despite headline-grabbing threats to the equity rally, we remained overweight risk during the first half of 2017. Our focus will stay on underlying economic data, strong earnings growth, and ongoing central bank stimulus.

– Striking the right investment balance will become harder in the second half of the year due to Fed tightening and higher equity valuations. Various geopolitical events could also cause investors to demand higher risk premiums.

– We stay overweight global equities, but we close our overweight position in US dollar high yield bonds. This trade has performed well since it was opened at the start of 2017. But a narrowing of spreads means that additional upside now looks limited.

– We add an overweight position in the euro versus the Swiss franc. Markets are anticipating a gradual reduction in the scale of quantitative easing from the ECB. The Swiss franc will be among the losers as this process progresses, given deeply negative real rates and excess liquidity.

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