"UBS CEO warns markets are being overly complacent; war and inflation are driving up risks."

UBS CEO warns markets against complacency despite trade wars and inflation, expects the Fed, ECB, and BOJ to continue raising interest rates, pushing financing costs high for an extended period.

On September 10, 2569, at 09.50:XNUMX a.m., CNBC reported that Sergio Ermotti, CEO of UBS, warned that investors in financial markets have become overly risk-averse in recent years. Despite continuously increasing geopolitical and economic risks, the current environment is more complex due to new problems overlapping with existing unresolved issues.

Ermotti told CNBC that, considering the current global environment, financial markets should be much more volatile than they are today. Even though the markets have experienced periodic tremors, significant investments in artificial intelligence (AI), data centers, and emerging technologies continue to support economic growth and financial markets.

However, the UBS CEO believes investors are facing multiple risk factors simultaneously, with new problems emerging while many old issues remain unresolved. These include energy and transportation risks from the Iran-Ukraine conflict, competition between the US and China putting pressure on supply chains, as well as higher borrowing costs and persistently high inflation—all of which are pressuring economic growth.

This uncertainty has led many wealthy investors to diversify their investments rather than placing large bets in any one direction. Ermotti notes that in such an environment, having an overly confident investment outlook on any single direction may not be appropriate.

Over the past several quarters, UBS clients have diversified their portfolios across a wider range of industries and regions while continuing to invest in AI and technology. However, the overall asset allocation for UBS clients has not changed significantly over the past year, and this diversification does not necessarily mean that investors are withdrawing significantly from U.S. assets.

Ermotti stated that UBS had seen some investment flows into emerging markets worldwide about a year ago, but most of that was reinvestment of surplus cash rather than direct selling of US assets or reducing dollar holdings. This has eased concerns about capital outflows from the US or a diminishing role for the dollar, with the US dollar remaining a key global benchmark currency.

Another factor driving investors to seek a more balanced portfolio is the high interest rate environment. As inflation remains persistent and exceeds the targets of many central banks over the past year, tightening monetary policy is not surprising.

Ermotti expects major central banks, including the European Central Bank (ECB), the U.S. Federal Reserve (Fed), and the Bank of Japan (BOJ), to likely raise interest rates in the coming months. He sees the ECB possibly starting a rate-raising cycle, followed by the Fed, and anticipates around two more rate hikes in the next few months.

This view means that investors should not expect borrowing costs to quickly return to the low levels seen before the latest round of inflationary pressures. Ermotti emphasized that inflationary pressures remain and show no clear signs of easing, making it reasonable to expect interest rates to remain high for some time.

This overview reflects that, while financial markets continue to be supported by investment in AI and technology, UBS believes investors should not overlook accumulating risks such as war, tensions between superpowers, inflation, and high interest rates. Diversifying investments both by industry and region remains a key approach to coping with this highly uncertain environment.

Reference: cnbc.com

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