Swiss-headquartered UBS Global Wealth Management and UK-based Thesis Asset Management have opposing views on the continuation of the investment bull market.
UBS believes that the bull market remains intact, valuations look compelling and there is scope for positive surprises, whereas Thesis believes years of healthy returns for bond investors, fuelled by low rates and inflation, could be about to reverse as the fixed-income market heads towards bear market territory.
The Swiss wealth manager said despite recent equity market sell-offs, it has increased its overweight in global equities versus high-grade bonds.
Maturing bull
Caroline Simmons, deputy head of UBS Wealth Management’s UK investment office, said: “The market fall in October and further sell-offs in recent weeks represent a correction in the context of an ongoing bull market, rather than the start of a bear market.
“We acknowledge that the bull is maturing, and this stage of the cycle is typically associated with both higher volatility and more modest scope for further gains. But we think that the value offered by global stocks justifies tolerating the potential for higher volatility.
“While markets remain fragile, the recent sell-offs represent a buying opportunity. Even using our own cautious earnings estimates and factoring in the first rounds of US-China trade tariffs, valuations still look favourable, and there is certainly room for the market to move higher.”
UBS’s change in position comes after it downgraded global equities to a small overweight in August 2018. At the time, the company said trade tensions were likely to persist, but it now sees greater potential for positive upside.
Negative returns
Thesis, however, has a different opinion when it comes to the end of the bull market.
The asset manager said bond investors should brace themselves for pain as the era of low interest rates and inflation come to an end.
Ryan Paterson, research analyst at Thesis Asset Management, said: “Most government bonds markets have generated negative total returns over the last 12 months and we think a bond bear market is on the horizon, given robust growth and rising inflationary pressures.
“We also think that market expectations are underestimating the pace of monetary policy tightening further ahead and this leads us to believe there is more pain ahead for fixed-income investors.
“While US treasuries have been the primary driver of the bond bear market, yields across the globe are starting to get dragged higher. We are therefore remaining short duration and underweight government bonds.”
Paterson also believes that the corporate bond market is another area for investors to be cautious of.
He added: “The credit market doesn’t look that enticing either, having already benefitted from a supportive corporate environment of low default rates and a relatively buoyant earnings backdrop.
“We feel the compression in corporate bond spreads is now behind us, and the fixed-income space leaves little space to hide.”
