UBS is urging investors not to rely solely on the ongoing rally in US stocks, arguing that diversification into selected Asian markets, high-quality bonds and gold will be key to building a more resilient portfolio over the next 12 months. The Swiss bank expects the US bull market to expand, supported by an accommodative Federal Reserve, solid earnings momentum and continued artificial intelligence-driven investments. But with soaring valuations for some U.S. tech companies and lingering geopolitical risks, UBS says increasing its exposure will help prevent a potential bout of volatility. “While we believe U.S. stocks have the potential for further upside, we also believe diversification is key for investors to build long-term resilient portfolios,” UBS said in a note Friday. “Aside from U.S. equities, we currently see the biggest opportunities in some Asian markets, high-quality bonds and gold.” China and Japan on the Rise China and Japan stand out as the most attractive equity opportunities across Asia, the bank’s strategists said. In China, the company views technology as a structural investment theme, against the backdrop of the Chinese government’s promotion of homegrown innovation, technological independence and advanced manufacturing, based on the 2026-2030 policy direction announced at the recently concluded 4th General Assembly of the Communist Party. “We continue to rate China’s tech sector as the most attractive and overall Chinese stocks as attractive, with the MSCI China Index expected to rise by double digits over the next 12 months,” UBS said. The MSCI China Index has risen more than 35% since the beginning of the year, according to LSEG data. Although the US-China tensions continue, support for China’s liquidity environment and retail investors’ shift from bank deposits to stocks are also expected to act as catalysts. Meanwhile, Japan is poised to benefit from new Prime Minister Sanae Takaichi’s pro-growth policies, corporate reforms and structural improvements. UBS expects domestic focus sectors related to infrastructure, technology and national security to perform better. Takaichi is widely seen as a disciple of Abenomics, the economic policy framework introduced by the late Prime Minister Shinzo Abe that promoted monetary easing, increased fiscal spending and structural reforms. The Nikkei Stock Average has risen more than 25% since the beginning of the year and recently hit a record high. Safe Haven UBS also recommends adding exposure to high-quality bonds, particularly U.S. investment-grade bonds and Treasuries, noting that yields remain attractive even after some declines this year. U.S. 10-year Treasury yields have fallen by about 58 basis points so far this year, and UBS expects them to fall further. The bank said high-quality bonds offer an attractive balance of risk and return and tend to outperform during market downturns while delivering decent returns at current yields. “If there are concerns about the health of the U.S. economy or the sustainability of AI prices, we expect high-quality bonds to rally,” UBS strategists said. Gold also remains a central part of UBS’s resilience strategy and is seen as an effective hedge against political and economic shocks. The bank remains hopeful for further upside amid continued global uncertainty. This comes after gold prices recently recorded their steepest daily decline since 2020. However, bullion prices remain at historic levels above $4,000 per ounce. Gold prices have been volatile over the past week, but UBS views this pullback as a healthy price move rather than a structural reversal. The company maintains its year-end gold target at $4,200 an ounce, with an upside scenario of $4,700 if geopolitical tensions increase or U.S. fiscal risks deepen. Lower real interest rates, a weaker dollar and concerns about sovereign debt are also expected to drive further inflows into the metal.
