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Equities Will Move Higher, Says UBS’s Zuercher

Aug.31 -- Adrian Zuercher, head of global asset allocation at UBS CIO Global Wealth Management discusses his investment strategy and outlook for markets. He speaks on “Bloomberg Markets: China Open.”

Video Transcript

DAVID INGLES: I know you guys have been bullish. You've been risk-on pretty much. You've ridden what now looks to be a five, maybe six-month rally in equities. How do you feel now?

ADRIAN ZUERCHER: Well, we, definitely, extended in this rally. But we would say, it can continue. Valuation not as attractive anymore as two months ago. But look at the equity risk premium, which is still very attractive.

I think the Fed has really created an environment and will create an environment going forward where equities can move higher and are attractive, particular as other asset classes. So we remain on the risk-on side. But we start to shift, slowly, into sort of some of the laggards, some of the more cyclical exposures that we want to build up in our allocation strategy.

DAVID INGLES: What sectors would those be when you say cyclicals?

ADRIAN ZUERCHER: Well, I mean, look what Warren Buffet did in Japan. So Japan is deep value. And it has one of the highest exposure to industrial cyclicals, commodities. We bought the first term for the last six years of [INAUDIBLE] commodity index couple of weeks back. We are long gold.

And I think this story is not over yet, particular the US dollar can weaken much further from here. And that's creating an environment where you sort of combine negative real interest rates by the Fed. The recovery will continue. And we get data out of Europe and the US later today.

But even the one in Asia are confirming that this recovery has not stalled yet. It may be a bit weaker than one or two months ago. But it can continue. And that's exactly the environment where you want to start to pick up some of the laggard names.

YVONNE MAN: Yeah, Adrian, I thought it was interesting when it comes to within Asia in your equity portfolio, you're looking at places like Singapore and India, where Southeast Asia, South Asia has really lagged behind. What are you seeing in some of these markets right now to build a case around them?

ADRIAN ZUERCHER: Yeah, absolutely. I think India is actually already doing quite well. I think you're not just buying, necessarily, the economy India has, also a big part of IT outsourcing stocks. And they have done extremely well over the last couple of weeks. India is actually, particularly the last two or three weeks, one of the best performing markets, even slightly ahead of China.

Singapore is a different story. Singapore has relaxed. It's still struggling at the moment with low interest rates. Its heavy tailed to financials, of course, real estate. But we do think as the economic recovery will continue, the Fed basically indicated it's allowing to overshoot inflation, and that, at one point, you will start to pick up some of these laggards.

And we see value there. I think they are-- at this point, we would call it undervalued, compared particularly to some of the growth stocks, which may move higher from here. And there's still momentum behind these stocks.

And investors are piling into them. But you want to sort of running a barbell strategy at this point, where some of these laggards' names are actually starting to show up in your portfolio. And probably the next leg, particular going in 2021 when earnings growth starts to become double-digits for most of the regions, that these names are the ones that are favored.