UBS Wealth Management Hu Yifan: Reduce US dollar cash, China has "the cards" in hand

On June 11, Hu Yifan, the Chief Investment Officer of UBS Wealth Management for Greater China, conducted a thematic investment sharing session.

Zhi Shi Tang noted that Hu Yifan emphasized the current global investment environment is very complex, and investors need to be more cautious in asset allocation.

Regarding the highly anticipated equity opportunities, she pointed out: look for opportunities to enter the market in batches in a volatile market. Particularly in the United States, the technology and power sectors are areas worth paying attention to. In Asia, China's technology sector also shows attractiveness. In Europe, the defense and industrial sectors, as well as small and mid-cap stocks, provide investment opportunities.

Zhi Shi Tang has organized the content of Hu Yifan's sharing session as follows (from a first-person perspective) for readers.

“American Exceptionalism” May No Longer Apply

This year, the market has been turbulent. At the beginning of the year, we predicted that the market would be volatile, but the actual situation has been more severe than we imagined. In the second half of the year, global investors' focus will mainly be on three topics: tariffs, whether the Federal Reserve will cut interest rates, and global diversification.

Regarding tariffs, the 90-day suspension announced on April 2 is about to end, and the market is full of questions about it. On the issue of the Federal Reserve cutting interest rates, the market generally expects a rate cut this year, but it has not yet happened, and analysis opinions are quite divergent. In terms of global diversification, over the past three years, U.S. assets, especially technology stocks, have provided the best returns for investors, but this year, American exceptionalism may no longer apply, and investors need to shift towards global diversification.

American exceptionalism means that during global market turmoil, funds often flow into the U.S. because the dollar and U.S. Treasury bonds have safe-haven functions. However, now American exceptionalism may no longer apply, and investors need to reconsider global asset allocation. On the tariff issue, many countries have been affected since the tariffs were announced on April 5. After the 90-day suspension period ends, the market is full of questions about the trend of tariffs. We believe that during the 90-day negotiation period, the countries most likely to reach a tariff agreement are the UK, Japan, and India. These countries may reduce tariffs through purchasing agreements.

On the tariff issue, the U.S. dependence on exports to China is an important factor. For example, the U.S. reliance on Chinese smartphone components and computer screens exceeds 40%, which may affect tariff exemptions. In the China-U.S. negotiations, China holds cards including rare earth export controls. China accounts for a significant proportion of global rare earth production, which is very important for the military, new energy, and automotive industries.

Japan and the UK may be the first to reach agreements involving products and services. China also has purchasing power, including energy services.

China's Economy is Resilient

Regarding the Chinese economy, we believe it still has resilience overall. Specifically, in terms of monetary policy, we predict that there will be a 50-100 basis point reserve requirement ratio cut in the second half of this year, releasing about 1 trillion in liquidity. The inflation level remains low, and fiscal support policies may act opportunistically.

Regarding the RMB exchange rate, we predict that the RMB will remain relatively stable. The stability of the RMB attracts overseas investment, which has a positive impact on both the stock market and the bond market. In terms of the U.S. economy, we predict that inflation may rise, with core inflation potentially returning to 4%. Economic growth may slow down, with a GDP growth forecast of 1.5% for this year. The job market remains resilient but faces the dual pressures of rising inflation and economic slowdown.

The challenges facing the U.S. include debt issues and fiscal deficits. The pressure for principal and interest repayment in the U.S. is very high this year, with interest expenses reaching $1 trillion. 30% of U.S. debt is held by foreign investors, which increases market uncertainty. The Inflation Reduction Act may impose additional taxes on foreign investors, which could affect their willingness to invest in the U.S.

Neutral Outlook on U.S. Stock Investment

The golden era of U.S. Treasury bonds has passed, and the downgrade in credit ratings has had a significant impact on the market. Demand for U.S. Treasury bonds has decreased, leading to rising bond yields. The dollar has weakened during this round of market volatility, which is different from previous trends. The global investment environment is very complex, and we need to be more cautious in asset allocation.

In terms of the stock market, we hold a neutral view on U.S. stocks. Although the technology and power sectors in the U.S. remain attractive, valuations are high, and the upside potential is limited. In the bond market, we believe seeking permanent income is a good strategy. In addition to U.S. bonds, bonds from other countries around the world are also worth paying attention to. A weaker dollar may reduce some new costs.

Investment Outlook for the Second Half of the Year

Stock Market: Look for opportunities to enter the market in batches amid volatility. In particular, in the U.S., the technology and power sectors are areas to watch. In Asia, China's technology sector also shows attractiveness. In Europe, the defense and industrial sectors, as well as small and mid-cap stocks, provide investment opportunities.

Bond Market: Seek lasting returns. We recommend investing in high-rated bonds and adopting a diversified fixed income and yield enhancement strategy to cope with market volatility.

Dollar Trend: Weak in the medium term. It is advisable to reduce exposure to dollar cash and increase allocations to yen, euro, pound, and Australian dollar to diversify currency risk.

Alternative Investments: Consider investing in gold to navigate political risks, while hedge funds and principal redemption strategies at maturity are also effective means of managing risk.

Long-term Investment Direction

Focus on transformative innovation opportunities, such as artificial intelligence, power and resources, and the longevity economy.

First, artificial intelligence is one of the largest investment opportunities in history, creating significant value for U.S. real per capita GDP during the innovation cycle.

Second, in terms of power and resources, global electricity consumption is expected to continue growing over the next few decades, particularly in the construction, industrial, and transportation sectors, driven by consumption growth.

Third, the longevity economy is correlated with healthcare spending. As the proportion of the population aged 65 and over increases, healthcare spending will also rise, providing new growth points for investors.

Risk Warning and Disclaimer

Markets are risky, and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk