UBS Sounds Alarm on Concentrated US Markets
UBS has warned investors about the growing concentration risk in US markets due to their heavy reliance on American technology stocks. The Swiss bank's strategy note suggests that this concentration has left portfolios 'dangerously concentrated' and recommends broadening horizons to Europe and Asia for fresh opportunities.
The S&P 500 is expected to deliver further gains by the end of the year, but UBS warns that the market's reliance on AI winners has created a risk. The bank points out that global stocks are trading close to record highs due to cooling US inflation and strong earnings within the AI supply chain.
UBS argues that now is the moment to position for a broadening of gains, citing European equities as having room to break new highs. It notes that Stoxx Europe 600 companies are on course for their strongest second-quarter profit growth in four years, driven by rising spending on defence, infrastructure, automation, and energy security.
The bank also likes Japanese equities, where second-quarter operating profits are growing more than 20% year-on-year. It believes the market has established a cyclical bottom with attractive entry points in high-quality companies.