Current and future events around the world affect the stock market either positively or negatively. A few weeks ago when US President Donald Trump and his wife tested positive for COVID-19, the stock market was affected where prices for some companies on different stock exchanges around the world slightly rose, while others plummeted.
With investors trying to figure out which stocks to invest in given the current market conditions, UBS, the largest Swiss multinational investment bank and financial services company has increased confidence in investors with predictions of a market upside in the long term, even though things might look bleak now.
According to a note from UBS, the company predicts that investors should expect volatility in the stock market in the near future and lists a number of reasons why, including the forthcoming US Presidential Election in November.
Other factors that will negatively affect the stock market in the near-term include new COVID-19 lockdown measures in some European countries as well as the deepened tensions between the US and emerging superpowers China.
Do not bend your head in despair and disappointment; there is good news. The note from UBS further says that stocks will continue to rise in the medium-term, and investors are encouraged to position their portfolio in luck’s way so they can benefit wholesomely from the coming upside.
This upside, UBS notes, is attributed to a potential fiscal stimulus deal by the government, easy monetary policy by central banks, and medical developments by big pharmaceutical companies that are working on the COVID-19 vaccine and cure.
“A stimulus deal will be struck eventually, central banks will continue to stay supportive, and medical developments still have scope to surprise,” said UBS.
This is what UBS advises investors to focus on when making decisions on which kind of stocks to buy.
US mid-cap companies
Just a brief definition, mid-cap company is one whose market capitalisation or value is between $2 and $10 billion. This company falls between the large-cap and small-cap companies.
UBS says that investors can gain more cyclical exposure without underweighting growth by buying mid-cap stocks instead of choosing between value and growth. Mid-cap companies usually have a predicted growth rate of 10% per annum, compared to large-caps’ 3%.
“We continue to expect mid-cap earnings growth to outpace large-caps over the next year, which should be a key driver of the mid-cap call,” UBS explained.
Emerging market value stocks
UBS predicts that value stocks within the emerging market space will catch-up to their growth peers following a decade of underperformance. Investors can hook up on these kinds of stock because they offer attractive dividends in a low interest-rate world.
“Based on past episodes of value catch-up in 2016 and 2018, we think value has the potential to outperform the MSCI EM Index by 10% to 15% in the next six to 12 months in up and down markets,” UBS said.
UBS says that UK stocks are bound to be boosted by the rise in earnings next year as the global economy recovers from the effects of the COVID-19 pandemic. Other factors that will boost the UK stocks are the rise in oil prices and a potential Brexit del.
Currently trading at 30% discount to the MSCI AC World index compared with a 10-year average of 10%, the UK sector exposure points toward defensives and healthcare, both of which are more resilient – UBS notes.
Investors should consider picking up stocks from UK companies as the country’s stock market is expected to have an upside in the medium term.