The world economy is proceeding in line with expectations: the US labor market continues to show signs of strength, albeit with fluctuating data, giving hope for the trend in consumption. The Chinese economy has stabilized at a growth rate consistent with the government's objectives and other emerging markets, after years of difficulty, have also shown improving economic data. As for the eurozone, the first indications suggest that the impact of Brexit is limited for now, even if the uncertainty regarding the next steps remains high.
In this situation, it is important to keep in mind that the particular monetary policy conditions could generate sudden corrections, especially if the Federal Reserve proceeds towards a rate hike in the coming months, while the political risk, given the US presidential elections, of the Italian referendum and geopolitical tensions, continues to be a decisive element. The low volatility that has characterized the markets over the past few months must therefore not lead to letting our guard down. Any increase in volatility in the near future, if not justified by economic reasons, could provide an opportunity to increase exposure to riskier asset classes.
The improvement in economic conditions together with expansive monetary policies have led investors to seek returns even in the riskiest types of investments. On the bond market, UBS tends to keep IG USD corporate bonds as the only overweight, which still offer acceptable yields with low risk. It also confirms high-rated government bonds as the main underweight due to excessively compressed (and often negative) yields and the risk of potential corrections if inflation resumes.
The overweight position on the equity market is concentrated on the US market in consideration of the better economic performance and the expected recovery of corporate profits in the second half of 2016. Overweight also on emerging markets which show increasing signs of economic stabilization.
Finally, as regards the post-Brexit scenario, the impact for Switzerland remains limited also because the essential link for Bern is that with the EU, while with London it is much less direct. Furthermore, the first effects of Brexit, even for Europe, will not be felt for a year, given that the exit request will be formalized no earlier than January 2017 and London intends to negotiate with Brussels "following the Swiss example".
