This is a good environment for equities overall, and in particular for the energy and financial sectors, US mid-caps, and companies exposed to economic re-opening.On the back of strong economic growth and promising growth in corporate earnings as well, the global equities have rallied to new highs. While some volatility may not be ruled out, keeping your portfolio safe from any rude shocks is something you should be ready for at all times. Quality and established companies with reasonable valuations will show an uptrend over the long term even after bouts of dips and corrections. Exposure to the right sectors and themes will also play a role in the portfolio returns over time. Any corrections may be looked upon as buying opportunities in the US stocks and ETFs for long-term investing. New themes and sector rotation are already underway and catching the cycle early on may work to your advantage.
UBS Chief Investment Office (CIO) in their quarterly updates on the investment outlook, expects growth to remain strong as they forecast global growth of 6.2% in 2021 and 5.1% in 2022 and monetary policy to remain loose.
The Fed action later in the month will be a keenly watched event although much of the expectations may already have been absorbed in the stock prices. UBS in the report says, “The Federal Reserve, which is likely to announce its plans to taper quantitative easing in the fourth quarter, has been at pains to stress it will remain data-dependent, and that the start of tapering does not imply any particular timeframe for interest rate increases.
This creates a supportive fundamental backdrop for equities, and we continue to recommend investors to buy into markets and sectors best positioned to win from this period of high global growth.
Of course, a backdrop of global equities at record highs and interest rates at record lows is an uneasy one for many investors, and debates about the path by which the global economy returns to “normal” will contribute to volatility, even if the Fed has committed to managing this process carefully.”
UBS Chief Investment Office gives their outlook on equities and even the sectors to watchout for while staying away from some sectors as well. Along with Healthcare, there are certain long-term themes that USB CIO is bullish on. Read on.
Buy the winners from global growth
We are likely past the peak in year-on-year GDP growth rates, but growth and inflation are likely to stay elevated, thanks to consumer spending, retailer restocking, and monetary and fiscal stimulus measures. This should drive ongoing robust earnings growth: We are looking for 42% growth in global corporate earnings this year and 9% in 2022. We think this is a good environment for equities overall, and in particular for the energy and financial sectors, US mid-caps, and companies exposed to economic re-opening. In contrast, we see limited upside for sectors like industrials, real estate, and consumer staples.
Seek opportunities in healthcare
We think the healthcare sector offers an attractive combination of defensive and long-term growth features, combining relatively inelastic demand and attractive long-term structural drivers. The sector tends to outperform after economic indicators peak. Pharmaceuticals are the most defensive industry within the sector, while medtech stocks are more geared to the post-COVID-19 recovery. Transformational themes such as healthtech and genetic therapies provide exposure to longer-term structural growth. We think investors should include all of them in their portfolios.
Invest in long-term themes
Beyond healthcare and sustainability, the digital transformation of sectors ranging from transport to manufacturing and financial services continues. We see particular opportunity in smart mobility and automation, in those companies benefitting from the growth in the digital asset universe, and in cybersecurity, a key enabler of automation and digitalization.
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