Amidst the "AI concerns," UBS buy-side "reverse upgrades" global stock ratings

On October 21st, during the early trading session of Asian stock markets, the UBS Wealth Management Investment Director's Office stated: Upgrading the global stock rating to "attractive."

This viewpoint seems quite "risky" to many investors, as global stock markets are nearing historical highs, and some cyclical trading in AI investments has triggered investors' associations with the internet bubble.

Even with concerns about an AI bubble looming over the market, UBS buyers remain contrarian in their optimism for the global stock outlook. Their bullish logic at high levels is key.

"AI Giants" Capital Expenditure Continues to Grow

Why are UBS buyers raising stock ratings at this time?

UBS buyers pointed out: Recently, mega tech companies and AI chip companies have reached multi-billion dollar cooperation agreements, which further enhances our confidence that AI-related capital expenditures will exceed expectations and remain strong for a longer period. The application of AI is not limited to chatbots.

Investors' growth expectations for agent AI (AI systems capable of autonomous decision-making and action) and physical AI (such as robots and autonomous vehicles) support large tech companies' commitments to sustained high levels of capital expenditure.

"In the medium term, even if the currently planned AI capital expenditures reach nearly $1 trillion, this may still be below the required level, so we believe investments may continue to grow next year." UBS Wealth Management Investment Director's Office noted.

Positive for Cyclical Sectors

This buyer report also pointed out: Global economic growth exceeds expectations. This is expected to support corporate earnings. UBS has raised its earnings growth expectations for U.S. stocks in 2025 and 2026: Currently, we expect the S&P 500 index earnings per share to reach $275 (a year-on-year increase of 10%) and $295 (a year-on-year increase of 7%) in 2025 and 2026, respectively, both up by $5 from previous forecasts.

Additionally, the Federal Reserve restarted its interest rate cut cycle in September, and further cuts are expected in the future, which is beneficial for the stock market in a non-recessionary environment.

Investors Should Reassess Stock Exposure

The UBS Wealth Management Investment Director's Office provided the following operational advice:

Investors should review their current stock allocation, ensuring it is at least in line with or slightly above long-term strategic asset allocation targets. Investors should reassess stock exposure, ensuring sufficient attention is given to sectors and markets we are optimistic about, as they possess long-term growth potential (China, the U.S., global technology), transformative innovation opportunities (AI, electricity and resources, and longevity economy), and clear catalysts for driving earnings upgrades (Japan and global banks).

Continue Holding Bonds and Gold

The UBS Wealth Management Investment Director's Office further pointed out: Amid various concerns raised by AI, it is crucial for investors to continue focusing on their long-term goals and maintain diversified allocations.

In light of this, we remain optimistic about high-quality bonds, which help protect portfolios in a slowing growth environment. Additionally, holding gold is also a good strategy for diversifying investments and hedging portfolio risks.