UBS warns of a downgrade in global economic growth, with gold and local bonds in emerging markets becoming the core of safe-haven assets

According to the Zhitong Finance APP, UBS's latest strategy report emphasizes the far-reaching impact of the tariff measures previously announced by the United States on the global economy. UBS estimates that the actual GDP growth rate of the United States will be revised down to 1.6% in 2025, with inflation potentially rising by 2 basis points, and the unemployment rate may climb to 5.3% by the end of 2026, putting the Federal Reserve in a difficult position. Global economic growth expectations have also been revised down, with the global growth rate lowered by 40 basis points to 2.6% in 2025, and down by 20 basis points to 2.5% in 2026. China's GDP growth expectation for 2025 is 4.0%, while the Eurozone is only 0.7%, highlighting the insufficient growth momentum of the world economy under the shadow of trade frictions.

In the fixed income sector, UBS maintains a cautious stance on long-term U.S. Treasuries, recommending to go long on 30-year U.S. Treasuries relative to swap rates, while also positioning in the U.S. 10-year breakeven inflation rate and 5-year Euro inflation swaps. This allocation strategy implies expectations of an upward shift in the inflation center, with data showing that UBS predicts U.S. Treasury yields will reach 3.80% by the end of 2025.

It is noteworthy that despite a temporary easing of tariffs between China and the U.S., UBS emphasizes that the lagging effects of inflation pressure transmission and the uncertainty of U.S. fiscal policy make the risk-reward ratio of aggressively going long on fixed income products less than ideal.

The foreign exchange market allocation highlights UBS's volatility trading mindset. The report suggests buying during periods of declining foreign exchange volatility rather than directly shorting the U.S. dollar. This strategy is based on the judgment that the U.S. dollar index is still undervalued by models—currently, the dollar index is around 100, while UBS's equilibrium valuation model indicates that its reasonable level should be in the range of 102-106.

For emerging market currencies, UBS's strategy shows regional selectivity, recommending long positions in commodity currencies such as the Brazilian real and Mexican peso, which corresponds with the IMF's forecast of a 4.4% growth rate for Asian emerging economies, reflecting institutional recognition of regional economic resilience.

The stock market allocation presents a cautiously optimistic attitude. UBS sets a year-end target price of 5,300 points for the S&P 500 index, indicating a potential upside of 7% from current levels, but also warns that the market has entered a high valuation zone. Sector allocation focuses on basic materials, capital goods, and financial sectors, which are expected to benefit from a soft landing of the global economy under UBS's baseline scenario assumptions.

In the credit market, institutions have observed that the investment-grade credit spread has compressed to 155 basis points, nearing the theoretical lower limit under a tariff easing scenario, indicating limited room for further narrowing.

Emerging market allocation highlights differences in asset class preferences. UBS recommends rotating funds into 2-5 year local debt in Brazil, Mexico, South Korea, India, and Singapore, rather than directly allocating to stocks. This choice is driven by considerations of the interest rate environment—currently, emerging market U.S. dollar bond yields are 320 basis points higher than U.S. Treasuries, while local currency bonds are more attractive due to reduced currency hedging costs.

It is worth noting that UBS's economic growth expectations for Asian emerging markets are 0.3 percentage points higher than the IMF's forecast, and this regional economic disparity forms an important basis for its asset allocation In terms of risk hedging, UBS has built a multi-layered defense system. For market risk, it is recommended to maintain gold positions, with a target price set at $3,500 per ounce, which represents a 45% premium over the spot price, reflecting the institution's high regard for geopolitical risk premiums.

For credit risk hedging, it is recommended to allocate to U.S. investment-grade bonds, whose spread level of 155 basis points is 20 basis points higher than the historical average, providing a relatively safe margin. Regarding liquidity risk, the report emphasizes that when the Market Volatility Index (VIX) breaks through the 25 threshold, equity asset exposure should be dynamically adjusted.

The UBS strategy report reflects a typical risk management-oriented allocation mindset. Against the backdrop of downward revisions to global economic growth expectations and rising policy uncertainty, institutions build a defensive cushion through duration management, volatility trading, and regional selection, while also seizing structural opportunities such as the artificial intelligence revolution and urbanization in emerging markets. This allocation framework essentially seeks relative certainty amid uncertainty, and its effectiveness will depend on the intensity of geopolitical games, the policy paths of major central banks, and the actual verification of global economic resilience