Core Convictions: Multi-Asset Rundown

In its latest weekly multi-asset rundown, UBS emphasizes that AI disruption remains the dominant market theme. Global economic growth demonstrated resilience in the fourth quarter, with tariff impacts proving smaller than expected and policies shifting toward accommodation. Regarding rates, the US 2-year Treasury yield recently dropped below 3.4%, marking its lowest level since September 2022. UBS maintains long positions on the US 10-year Treasury and prefers 2s5s SOFR steepeners. In foreign exchange, the firm anticipates continued US dollar weakness in the first quarter, followed by a recovery as US growth improves. Adjustments to British pound forecasts reflect rising political risks, maintaining an EURGBP year-end target of 0.85 while projecting 0.88 and 0.89 for the first and second quarters, respectively.

For equities, UBS continues to favor generative AI enablers such as memory companies, TSMC, specific utilities, and capital goods electrification. The firm also highlights AI adopters with strong pricing power, targeting sectors like banking, food retail, budget airlines, and construction. In credit markets, AI disruption concerns have driven US investment-grade, high-yield, and leveraged loan spreads wider. UBS expects AI-related risks to gradually impact credit through early 2027, predicting investment grade will outperform while leveraged loans lag. Within emerging markets, UBS added South Korean exposure last week, upgrading MSCI Korea to overweight and turning long on the won. Analysts project UBS's MSCI Korea 2027 EPS estimate stands 40% above market consensus, driven by robust tech cash flows that could eventually surpass US hyperscalers.