Navigate political risks
Uncertain US politics and geopolitics speak to market volatility, so investors can look for hedges and opportunities to buy assets on dips.


As President Trump assumes office, investors should prepare for volatility and potential policy surprises, particularly with respect to trade policy, and should consider portfolio diversification and hedging approaches. In equities, capital preservation strategies can help manage downside risks. Investors should manage allocations to long duration bonds carefully, given fiscal risks. We think long USDCNY could be an effective hedge against trade risks, while oil prices could move higher if pressure on Iran is stepped up. We also continue to see gold as an effective hedge against geopolitical and inflation risks.
President Trump’s inaugural address made pledges to bring down inflation, boost energy production, and levy tariffs on imports. In the first few days of the administration, the US has threatened tariffs on Mexico, Canada, China, and the European Union. And with President Trump yet to unveil details on the US’s stance toward Iran, Russia, and Ukraine, a combination of US domestic political uncertainty and geopolitical tensions will likely lead to pockets of volatility in global markets.
We identify several ways to navigate these risks and higher market measures of volatility, whether hedges or more opportunistic ways to buy assets at potentially lower prices:
Capital preservation strategies in at-risk markets, including Asia
Capital preservation strategies in at-risk markets, including Asia
Capital preservation strategies combine a zero-coupon bond with a call option that allows one to buy an asset at a pre-determined price. Higher interest rates and bond yields make the bond element cheaper, while below-average implied volatility would mean investors could participate in more of the potential gains in the asset on which they bought a call.
We believe this strategy could help to limit losses while staying invested in stocks most sensitive to US trade policy, including in Asia. Looking into 2025, we still believe that major central banks will continue their global rate-cutting cycle as inflation normalizes and as a means of moving monetary policy toward long-term neutral rates. This process would make zero-coupon bonds more expensive. And the historical relationship between interest rates and equity implied volatility suggests a potential rise in the cost of call options on stocks. We therefore believe capital-preservation strategies provide interesting opportunities for investors to express their equity views.
Buy on dips in structural trends, including AI
Buy on dips in structural trends, including AI
Reverse convertibles, a type of structured investment that combines a bond with a put option have the potential to offer higher yields compared to the market and can help investors buy assets on dips that they would like to hold for the longer term, such as stocks linked to AI and to power and resources.
Investors can consider them as a more defensive way to buy an asset, especially if they expect the asset to deliver moderate returns in the near term. The coupon payments from this type of structured strategy can provide returns or a buffer against price corrections. Investors looking to buy a particular asset but at a lower level than today’s market price may also see merit in this approach, if the reverse convertible investment is settled with the physical asset. And investors looking to sell volatility in periods when implied market volatility is high may also be interested in this approach. Generally, higher volatility leads to higher coupon payments.
Investing in reverse convertibles comes with risks, including the possibility of losing part of the invested capital if the underlying asset's price falls significantly.
Manage long duration bond exposure
Manage long duration bond exposure
Long-end rates in many developed markets have moved higher due to a repricing of the expected end point of the Fed's rate-cutting cycle, higher term-premiums given fiscal policy uncertainty in the US and elsewhere, international developments, and seasonal January supply effects.
Investors should therefore refrain from excess exposure to more volatile long-dated government bonds, preferring instead the 5-year point in high grade bonds. We also see opportunites to generate additional yield through reverse convertibles on US Treasuries, as an income diversifier.
Long USDCNY
Long USDCNY
We believe the yuan will continue to face pressure from President Trump’s proposed tariff plans, which may lead the People’s Bank of China (PBoC) to permit further depreciation of the currency. A weaker CNY against the dollar could help mitigate some of the negative impacts of any tariff hikes. Additionally, vulnerable domestic economic fundamentals are likely to weigh on yuan sentiment, contributing to higher FX demand and investment outflows. Overall, we like to be long USDCNY, targeting a move toward 7.50 in the coming months, which could also provide positive carry of 2.1% p.a. We believe a stop-loss of 7.20 is prudent.
Gold
Gold
We expect gold prices to recover and climb in the year ahead. Geopolitical risks are elevated and US monetary policy outcomes are far from certain, with money market pricing currently predicting only 39bps of cuts by the Fed in 2025 (versus our view for 50bps). Meanwhile, we expect central bank demand to remain solid—we forecast purchases of around 900 metric tons in 2025—driven by diversification and dedollarization trends. Moreover, an increasing US federal deficit and the worsening of the US debt profile over the long run should underpin gold's attractiveness versus the US dollar. From this perspective, we believe holding around 5% to gold within a USD balanced portfolio is optimal.
Oil
Oil
Crude oil prices recently broke above USD 80/bbl on additional US sanctions on Russia that targeted energy producers, shippers, insurers, tankers, and traders. We expect these moves to reduce Indian and Chinese demand for Russian oil. Coupled with comments by officials of the upcoming Trump administration regarding their desire to reintroduce a “maximum pressure campaign” on Iran, we see risks of higher oil prices in the short term. We therefore like to generate income by selling the risks of crude oil prices falling.
Disclaimers
Disclaimers
Year Ahead 2025 – UBS House View
Chief Investment Office GWM | Investment Research
This report has been prepared by UBS AG, UBS AG London Branch, UBS Switzerland AG, UBS Financial Services Inc. (UBS FS), UBS AG Singapore Branch, UBS AG Hong Kong Branch, and UBS SuMi TRUST Wealth Management Co., Ltd.