UBS published their highest conviction investment ideas for next year – falling USD is one

Prepare Portfolios for Lower Rates, AI Boom, and Select Opportunities

• UBS is advising investors to align their strategies with expectations of falling interest rates, emerging investment opportunities in AI, and promising sectors such as real estate and resources.

Rate Cuts on the Horizon

• UBS predicts major central banks will lower interest rates as inflation normalizes and labor markets cool. In this environment, investors are encouraged to diversify into high-grade and investment-grade bonds, diversified fixed income, and equity income strategies to enhance yields.

Bullish on Equities

• UBS maintains a positive outlook on equities, forecasting the S&P 500 to reach 6,600 by the end of 2025, driven by lower rates and robust growth. Beyond the U.S., the firm sees opportunities in select Asian markets (excluding Japan), Eurozone small- and mid-cap stocks, and high-quality Swiss dividend equities.

AI: A Decade-Defining Opportunity

• UBS highlights artificial intelligence as a transformative investment theme, projecting the sector could generate over $1.1 trillion in revenue by 2027. For now, the firm recommends focusing on megacap tech stocks and private companies in the enabling layer of the AI ecosystem.

Invest in Power and Resources

• The firm anticipates surging electricity demand fueled by AI adoption, industrial electrification, and decarbonization. UBS advises investing in infrastructure such as transmission, distribution, data centers, transportation, and energy storage.

Dollar Weakness Ahead

• While the U.S. dollar remains strong in the near term, UBS expects it to weaken alongside declining yields and rising twin deficit concerns. Investors are advised to hedge, sell on strength, or use options to generate yield as the currency softens.

Gold and Transition Metals

• Gold is positioned to benefit from falling interest rates, geopolitical tensions, and rising government debt concerns. UBS also sees strong potential in transition metals, as rising demand for electrification meets constrained supply.

Real Estate Opportunities

• UBS sees promise in global real estate, driven by limited supply and rising demand. Sectors like logistics, data centers, and multi-family housing stand out, with the firm recommending a focus on high-quality assets and strategic diversification. his strategic guidance underscores UBS’s forward-looking approach, balancing defensive positioning with opportunities for growth in transformative sectors.

This article was written by Eamonn Sheridan at www.forexlive.com.