Investing.com -- UBS has expressed a cautious stance on U.K. equities, even as Prime Minister Keir Starmer secured trade deals with the US and India last week.
In a note on Friday, the firm highlighted that for the FTSE 100 index, which generates the majority of its earnings abroad, the restoration of smooth global trade is more crucial than bilateral agreements.
UBS pointed out that deals between the US and China, as well as Europe, are necessary but face uncertain outcomes and could take a long time to conclude.
Despite not forecasting a recession, UBS anticipates economic growth to slow down, with global economic conditions easing and tariffs potentially decreasing within the next three to six months.
This could lead to a recovery in U.K. equities, yet UBS does not see significant upside and prefers to maintain a sideline position.
The firm recommends that investors seek exposure to U.K. stocks through sectors like industrials, utilities, IT, and real estate, which align with long-term transformational themes.
UBS advises clients to focus on strategies that preserve capital or use phased-in approaches to manage volatility and timing risks in the near term.
The firm is also on the lookout for short-term opportunities to capitalize on market fluctuations. In their tactical asset allocation portfolio, UBS has initiated a relative value theme, favoring Swiss equities over U.K. equities, both of which are rated as Neutral.
This decision is based on the belief that Swiss earnings growth has bottomed out, in contrast to the expected further 3% contraction in U.K. earnings this year.
Additionally, Swiss companies are seen as better poised to benefit from European fiscal spending and are less dependent on energy compared to their U.K. counterparts.