UBS, the world’s largest wealth manager, has told investors to sell off stocks for the first time since the height of the euro zone crisis in 2012.
Warning that the US-China trade war meant that investors should “brace for higher volatility”, UBS said investors should now go “underweight” on global equities in order to reduce exposure to political uncertainty.
While the Swiss investment giant warned investors against adjusting their portfolios as if they were preparing for a typical recession, the advice suggests that UBS now expect stocks to perform worse than other types of assets.
“While we think a reduction in risk is prudent, we note we are not bracing the portfolio for a traditional recession or the next Great Financial Crisis,” said Mark Haefele of UBS.
But the move is nonetheless reflective of growing fears for markets and the global economy.
US president Donald Trump on Sunday suggested that escalating trade tensions with China were akin to a national emergency, after both countries announced a series of retaliatory tariffs.
Stocks, after months of winning streaks, have tumbled in recent weeks.
UBS manages around $2.4 trillion (£1.95 trillion) in private wealth, and counts hordes of billionaires as clients.
“Although the continued resilience of consumers keeps us confident in the global economic outlook, we do not see this as the best environment for taking risk on stocks,” Haefele said.
UBS had previously advised investors to hold more stocks than lower-yield assets like government bonds.
It now said that, if the trade war escalated further, it was no longer confident that moves by the US Federal Reserve would push stock prices higher.
It still believed that such moves, as long as they were accompanied by strong consumer spending, would be enough to avoid a US recession.
The new advice means that UBS is now “close to a risk-neutral position”, Haefele said.
Earlier this month, a key investing metric — the yield curve — turned negative for both the UK and US for the first time since before the 2008 financial crisis.
A negative yield curve is seen as a harbinger of recession, and weak economic data from across the world has only added to fears.