World’s Biggest Wealth Manager Recommends Clients Trim Equities Holdings

UBS Wealth Management, which with $2.5 trillion in assets under its control is the world’s largest wealth manager, has recommended its clients reduce their exposure to equities. The bearish move comes after the Friday announcement by Donald Trump of an increase to already announced new trade tariffs on Chinese goods imported into the USA once again ratcheted up the trade war between the two economic giants.

In response to the development, UBS Wealth Management moved its recommendation on equities weighting in an investment portfolio to ‘underweight’ – which means a reduction. It’s the first time the wealth manager has had an underweight recommendation on stocks since the 2012 Eurozone crisis that left several countries, especially Greece, in danger of insolvency and deposits held in Cypriot banks take a ‘haircut’ of up to over 50%.

Explaining the recommendation to the Financial Times UBS Wealth Management’s global chief investment officer Mark Haefele commented:

“It seems less and less likely that [the trade war] will de-escalate before the end of the year. This latest round of tariffs increases the risk that global growth and manufacturing growth will slow.”

On Friday Trump made two separate comments that sent tremors through markets. He first announced that U.S. companies should “immediately start looking for an alternative to China”. That was followed up later in the day by a statement that said previously announced new tariffs on $250 billion of Chinese goods due to come into effect on October 1^st would be increased to 30% from the originally planned 25%. And that a 10% tariff on $300 billion of goods already in place would be increased to 15% in two stages on September 1^st and December 15^th.

He did seem to change his approach yesterday with a statement at the ongoing G7 summit that he has encouraged that China wanted to restart trade negotiations. That gave equities markets a boost. But UBS Wealth Management’s position is that it expects tensions to remain in place over at least the next several months, impacting global economic growth prospects.

However, the wealth manager does not believe that the trade war with China will see an economic slowdown tip into recession – at least in the USA. It is confident that the current combination of strong consumer spending and financial stimulus from the Fed will head that risk off because the combined contribution to the economy is a hefty 70%.

Equities markets are thought by many analysts to be particularly fragile to any slowdown right now due to the fact they are trading at historical highs and stocks are in any case viewed as expensive in relation to company fundamentals.