UBS lays out market strategies for all 3 economic-reopening scenarios, from a successful recovery to a COVID-19 resurgence
He penned a letter to clients on Thursday laying out three market strategies for various economic trajectories. Haefele said the US sits at a key fork in the road, with lingering coronavirus risks, renewed US-China tensions, and high valuations threatening to drag markets back to March lows.
The best near-term strategies depend on how economic reopening takes place. Outlined below are the three scenarios and market plays highlighted by Haefele, from a swift summer upswing to a rush for defensive assets.UBS's upside scenario sees the economy coming back online through May and June without the need for a second lockdown. Corners of the market that underperformed through the worst of the pandemic would present serious value and outperform on the upswing, Haefele said.
Investors should watch out for a weaker dollar should the economy soar back to past levels of growth. While the currency appreciated through the crisis, a slide in liquidity demand will drive the dollar's value lower. The British pound is the best currency for a foreign exchange trade against the dollar in such a scenario, UBS said.Haefele's baseline scenario projects economic reopening taking place through the summer and economic activity returning to past highs in December.
Even if the recovery isn't as quick as desired, UBS's base case creates long term opportunity in the healthcare, e-commerce, automation, and cybersecurity sectors. Sustainable investing will likely gain new appeal as well, with investors paying greater attention to green and socially responsible firms, according to the bank.
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