UBS Group has issued a call for investors to diversify their asset allocation, highlighting that over the next 12 months, key focus should be placed on Chinese technology stocks, Japan’s reform-driven opportunities, as well as high-quality bonds and gold — these assets will help portfolios withstand the dual impact of valuation pressures and geopolitical risks.
UBS Group is urging investors not to place all their bets on the U.S. stock market rally, emphasizing that diversifying into selected Asian markets, high-quality bonds, and gold over the next 12 months is crucial for building a volatility-resistant portfolio.
The Swiss bank expects the U.S. bull market to continue, supported by the Federal Reserve’s easing policies, robust earnings momentum, and sustained investments in artificial intelligence. However, given elevated valuations in some tech stocks and lurking geopolitical risks, UBS believes broadening investment scope can help hedge against potential market volatility.
China and Japan Markets Emerge as Key Opportunities
The bank’s strategists highlighted China and Japan as the most compelling equity investment targets in Asia. In China, the technology sector is viewed as a structural investment theme.
“We continue to rate the Chinese technology sector as the most attractive area, with an overall ‘attractive’ rating for Chinese equities. We expect the MSCI China Index to achieve double-digit gains over the next 12 months,” UBS specifically pointed out.
Data from the London Stock Exchange Group shows that the MSCI China Index has risen more than 35% year-to-date. China’s accommodative liquidity environment and the shift of retail investor funds from bank deposits to the stock market are also expected to act as catalysts.
Meanwhile, Japan is expected to benefit from Prime Minister Sanae Takaichi’s pro-growth agenda, corporate reforms, and structural improvements. UBS anticipates upside potential in domestic demand sectors related to infrastructure, technology, and national security.
Takaichi is widely regarded as the successor to “Abenomics,” the economic policy framework introduced by the late Prime Minister Shinzo Abe, which advocates loose monetary policy, expanded fiscal spending, and structural reforms.
The Nikkei 225 index has surged over 25% year-to-date, repeatedly hitting new historical highs. On Monday, the Nikkei 225 index broke through the psychological key level of 50,000 points for the first time. Japan’s first female Prime Minister Sanae Takachi pledged to strengthen national security and will meet with US President Trump on Tuesday.
Allocation of safe-haven assets
UBS Group also recommends increasing allocations to high-quality fixed-income assets, particularly US investment-grade bonds and Treasuries, emphasizing that their yields remain attractive even after this year’s minor pullback. The yield on the 10-year US Treasury has fallen by approximately 58 basis points this year, and UBS expects it to continue its modest downward trend.
The bank noted that high-quality bonds strike an ideal balance between risk and return, performing robustly during market corrections while still offering substantial returns at current yield levels. “If concerns arise regarding the health of the US economy or the sustainability of the AI boom, we expect high-quality bonds to rally,” UBS strategists wrote in the report.
Gold remains a core component of UBS Group’s risk-mitigation strategy, viewed as an effective hedge against political and economic shocks. Amid ongoing global uncertainties, the bank anticipates further upside potential for gold prices. This assessment comes amid gold experiencing its sharpest single-day sell-off since 2020. Nevertheless, spot gold prices remain above the historically elevated level of $4,000 per ounce.
Despite last week’s volatility in gold prices, UBS views this pullback as healthy consolidation rather than a reversal of the trend. The bank maintains its year-end gold price target at $4,200 per ounce, with potential to rise to $4,700 if geopolitical tensions escalate or US fiscal risks intensify. Lower real interest rates, a weaker US dollar, and sovereign debt concerns are also expected to drive continued inflows into the gold market.
link