UBS House View – Daily Europe
Mark Haefele, Chief Investment Officer Global Wealth Management, UBS AG
Jon Gordon, Strategist, UBS AG Hong Kong Branch
Vincent Heaney, Strategist, UBS AG London Branch
Christopher Swann, Strategist, UBS Switzerland AG
Andrew Thompson, strategist, UBS Switzerland AG
Patricia Lui, strategist, UBS AG Singapore Branch
In a state visit on Monday, US Vice President Kamala Harris and host Prime Minister Lee Hsien Loong of Singapore announced new bilateral cybersecurity cooperation and data-sharing agreements between their respective defense ministries, treasuries, and cybersecurity agencies.
This came just ahead of President Joe Biden’s White House roundtable cybersecurity talks on Wednesday with the CEOs of Apple, Amazon, Microsoft, and other major private sector leaders. In public remarks before the meetings, Biden reiterated that cybersecurity is a core national security challenge for the US and encouraged private sector leaders to use their power and resources to raise the bar on cybersecurity. China, too, is shoring up its national cybersecurity, with new rules on critical IT infrastructure oversight announced last week and several new regulations governing data-intensive private sector companies.
With governments, the private sector, and individuals all sharpening their focus on cybersecurity risks, we maintain a positive view on the industry:
1. As high-profile attacks grow, governments and companies are spending more on cybersecurity. The size of the global cybersecurity market was close to USD 145bn last year and has been growing by 8% annually in recent years. We expect that rate of growth to accelerate to close to 10% this year. We view cybersecurity as one of the most defensive segments within IT, with spending outpacing the broader enterprise IT sector in the last few years.
2. Individuals and smaller companies are no longer off the radar for attackers. In one recent attack, thousands of small businesses and organizations were compromised due to a flaw in third-party IT monitoring services. That incident suggests that small size or obscurity is no longer an effective shield against cybersecurity attacks. As a result, we think smaller firms may be forced to increase their security-specific spending to avoid disruptions. Individual consumers may also spend more on cybersecurity services and subscriptions.
Hang Seng –1%, S&P 500 futures –0.2%, with markets cautious ahead of Jackson Hole.
S&P 500 +0.2%, reaching another record high on Wednesday.
Brent crude –0.6% to USD 71.80 a barrel, the first decline in four days on delta concerns.
What to watch: 26 August 2021
• The Fed’s Jackson Hole symposium begins
• Bank of Korea monetary policy decision • ECB publish minutes from July meeting
This report has been prepared by UBS AG and UBS AG Hong Kong Branch and UBS AG London Branch and UBS Switzerland AG and UBS AG Singapore Branch. Please see important disclaimers and disclosures at the end of the document.
3. Cybersecurity is a key enabler for many structural growth sectors.
Enhanced security spending and services will be needed by key growth
sectors we like, such as 5G devices, fintech (including payments),
greentech (e.g., solar and wind technology), automated driving systems
in electric vehicles, and healthtech (e.g., digitalized health data). With
only 20% penetration, cloud security will be a key future growth driver
for the global cybersecurity market amid a broader shift to cloud and
subscription services, in our view.
So we view a sharpened government focus on improving cyber defense as
yet another growth driver for the cybersecurity industry. Within technology,
cybersecurity is one of several segments that align with our bottom-up
preference within tech for small- and mid-cap names, and as a key enabler of
structural growth themes. The sector increasingly aligns with a broader shift
to subscriptions-based digital services—a market we see growing at around
18% a year through 2025. Click here to read more on structural growth
Caught our attention
• ECB sees limited impact from delta with growth on track. The fast
spreading delta variant will only have a limited impact on the Eurozone
economy, which remains on track for robust growth this year and next,
said ECB Chief Economist Philip Lane in a Reuters interview. Lane said that
Europe’s advanced vaccination campaign and public health measures are
making the region an exception as other countries face fresh strains on
their health systems from surging infections. At the same time, he noted it
is still too early to discuss unwinding of the central bank’s bond purchase
program, saying that the main task for the ECB at September’s meeting
is to decide on the pace of bond purchases for the coming quarter.
Lane’s remarks reaffirm our view that the ECB will continue to adopt
a very accommodative policy stance to support the economic recovery,
justified by very subdued inflation. The ECB’s relatively dovish bias is
likely to see the EUR underperform over a 6–12-month horizon, especially
against currencies exposed to central banks that are normalizing policy.
We maintain our view that global economic reopening remains on track,
as rising vaccination rates and falling hospitalization levels should allow
governments in major nations to keep their economies open. We continue
to advise investors to stay positioned for global reopening and reflation
while protecting against downside risks, as delta-related headlines will
continue to introduce volatility.
• S&P 500’s 50 all-time highs. The S&P 500 closed at 4,496.19 on
Wednesday, another record high. This brings the number of S&P 500 all
time daily highs in 2021 to over 50, which is already more than in each
of the past three calendar years. Against a backdrop of economic growth
and gradually receding inflation, we see further upside for corporate
earnings and equities. Our S&P 500 target for June 2022 is 4,800,
and 5,000 for end-2022. We advise investors to position in stocks that
should benefit from strong economic growth. At a sector level, we prefer
financials, which should be well supported by rising 10-year Treasury
yields, and energy, which we expect to benefit from a further rise in oil
prices in the second half of the year. At a regional level, we like Japanese
stocks as their revenues are highly exposed to the global recovery.
• German Ifo data signals weaker momentum, but recovery remains
on track. The latest data from Germany’s Ifo Institute confirmed a further
decline in business morale, coming on the back of recently published
leading indicators which signaled a loss of momentum for Europe’s
biggest economy. The Ifo index for August came in at 99.4, compared
to expectations of 100.4, and a revised July number of 100.7. But while
the index has now fallen for a second consecutive month, it remains at
the highest level since April 2019, and its current assessment component
has also improved to the highest level since June 2019 despite fading
expectations—both of which in our view bode well for growth in the third
quarter and the highly cyclical German market’s further upside amid the
ongoing global economic reopening and recovery.
Non-traditional asset classes are alternative investments that include hedge funds, private equity, real estate, and managed futures (collectively, alternative investments). Interests of alternative investment funds are sold only to qualified investors, and only by means of offering documents that include information about the risks, performance and expenses of alternative investment funds, and which clients are urged to read carefully before subscribing and retain. An investment in an alternative investment fund is speculative and involves significant risks. Specifically, these investments (1) are not mutual funds and are not subject to the same regulatory requirements as mutual funds; (2) may have performance that is volatile, and investors may lose all or a substantial amount of their investment; (3) may engage in leverage and other speculative investment practices that may increase the risk of investment loss; (4) are long-term, illiquid investments, there is generally no secondary market for the interests of a fund, and none is expected to develop; (5) interests of alternative investment funds typically will be illiquid and subject to restrictions on transfer; (6) may not be required to provide periodic pricing or valuation information to investors; (7) generally involve complex tax strategies and there may be delays in distributing tax information to investors; (8) are subject to high fees, including management fees and other fees and expenses, all of which will reduce profits.
Interests in alternative investment funds are not deposits or obligations of, or guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Prospective investors should understand these risks and have the financial ability and willingness to accept them for an extended period of time before making an investment in an alternative investment fund and should consider an alternative investment fund as a supplement to an overall investment program.
In addition to the risks that apply to alternative investments generally, the following are additional risks related to an investment in these strategies:
● Hedge Fund Risk: There are risks specifically associated with investing in hedge funds, which may include risks associated with investing in short sales, options, small-cap stocks, “junk bonds,” derivatives, distressed securities, non-U.S. securities and illiquid investments.
● Managed Futures: There are risks specifically associated with investing in managed futures programs. For example, not all managers focus on all strategies at all times, and managed futures strategies may have material directional elements. ● Real Estate: There are risks specifically associated with investing in real estate products and real estate investment trusts. They involve risks associated with debt, adverse changes in general economic or local market conditions, changes in governmental, tax, real estate and zoning laws or regulations, risks associated with capital calls and, for some real estate products, the risks associated with the ability to qualify for favorable treatment under the federal tax laws.
● Private Equity: There are risks specifically associated with investing in private equity. Capital calls can be made on short notice, and the failure to meet capital calls can result in significant adverse consequences including, but not limited to, a total loss of investment.
● Foreign Exchange/Currency Risk: Investors in securities of issuers located outside of the United States should be aware that even for securities denominated in U.S. dollars, changes in the exchange rate between the U.S. dollar and the issuer’s “home” currency can have unexpected effects on the market value and liquidity of those securities. Those securities may also be affected by other risks (such as political, economic or regulatory changes) that may not be readily known to a U.S. investor.
UBS Chief Investment Office’s (“CIO”) investment views are prepared and published by the Global Wealth Management business of UBS Switzerland AG (regulated by FINMA in Switzerland) or its affiliates (“UBS”).
The investment views have been prepared in accordance with legal requirements designed to promote the independence of investment research. Generic investment research – Risk information:
This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis contained herein does not constitute a personal recommendation or take into account the particular investment objectives, investment strategies, financial situation and needs of any specific recipient. It is based on numerous assumptions. Different assumptions could result in materially different results. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all investors. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness (other than disclosures relating to UBS). All information and opinions as well as any forecasts, estimates and market prices indicated are current as of the date of this report, and are subject to change without notice. Opinions expressed herein may differ or be contrary to those expressed by other business areas or divisions of UBS as a result of using different assumptions and/or criteria.
In no circumstances may this document or any of the information (including any forecast, value, index or other calculated amount (“Values”)) be used for any of the following purposes (i) valuation or accounting purposes; (ii) to determine the amounts due or payable, the price or the value of any financial instrument or financial contract; or (iii) to measure the performance of any financial instrument including, without limitation, for the purpose of tracking the return or performance of any Value or of defining the asset allocation of portfolio or of computing performance fees. By receiving this document and the information you will be deemed to represent and warrant to UBS that you will not use this document or otherwise rely on any of the information for any of the above purposes. UBS and any of its directors or employees may be entitled at any time to hold long or short positions in investment instruments referred to herein, carry out transactions involving relevant investment instruments in the capacity of principal or agent, or provide any other services or have officers, who serve as directors, either to/for the issuer, the investment instrument itself or to/for any company commercially or financially affiliated to such issuers. At any time, investment decisions (including whether to buy, sell or hold securities) made by UBS and its employees may differ from or be contrary to the opinions expressed in UBS research publications. Some investments may not be readily realizable since the market in the securities is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. UBS relies on information barriers to control the flow of information contained in one or more areas within UBS, into other areas, units, divisions or affiliates of UBS. Futures and options trading is not suitable for every investor as there is a substantial risk of loss, and losses in excess of an initial investment may occur. Past performance of an investment is no guarantee for its future performance. Additional information will be made available upon request. Some investments may be subject to sudden and large falls in value and on realization you may receive back less than you invested or may be required to pay more. Changes in foreign exchange rates may have an adverse effect on the price, value or income of an investment. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, synthesizing and interpreting market information.
Tax treatment depends on the individual circumstances and may be subject to change in the future. UBS does not provide legal or tax advice and makes no representations as to the tax treatment of assets or the investment returns thereon both in general or with reference to specific client’s circumstances and needs. We are of necessity unable to take into account the particular investment objectives, financial situation and needs of our individual clients and we would recommend that you take financial and/or tax advice as to the implications (including tax) of investing in any of the products mentioned herein.
This material may not be reproduced or copies circulated without prior authority of UBS. Unless otherwise agreed in writing UBS expressly prohibits the distribution and transfer of this material to third parties for any reason. UBS accepts no liability whatsoever for any claims or lawsuits from any third parties arising from the use or distribution of this material. This report is for distribution only under such circumstances as may be permitted by applicable law. For information on the ways in which CIO manages conflicts and maintains independence of its investment views and publication offering, and research and rating methodologies, please visit www.ubs.com/research. Additional information on the relevant authors of this publication and other CIO publication(s) referenced in this report; and copies of any past reports on this topic; are available upon request from your client advisor.
Options and futures are not suitable for all investors, and trading in these instruments is considered risky and may be appropriate only for sophisticated investors. Prior to buying or selling an option, and for the complete risks relating to options, you must receive a copy of “Characteristics and Risks of Standardized Options”. You may read the document at https://www.theocc.com/about/publications/character-risks.jsp or ask your financial advisor for a copy.
Investing in structured investments involves significant risks. For a detailed discussion of the risks involved in investing in any particular structured investment, you must read the relevant offering materials for that investment. Structured investments are unsecured obligations of a particular issuer with returns linked to the performance of an underlying asset. Depending on the terms of the investment, investors could lose all or a substantial portion of their investment based on the performance of the underlying asset. Investors could also lose their entire investment if the issuer becomes insolvent. UBS Financial Services Inc. does not guarantee in any way the obligations or the financial condition of any issuer or the accuracy of any financial information provided by any issuer. Structured investments are not traditional investments and investing in a structured investment is not equivalent to investing directly in the underlying asset. Structured investments may have limited or no liquidity, and investors should be prepared to hold their investment to maturity. The return of structured investments may be limited by a maximum gain, participation rate or other feature. Structured investments may include call features and, if a structured investment is called early, investors would not earn any further return and may not be able to reinvest in similar investments with similar terms. Structured investments include costs and fees which are generally embedded in the price of the investment. The tax treatment of a structured investment may be complex and may differ from a direct investment in the underlying asset. UBS Financial Services Inc. and its employees do not provide tax advice. Investors should consult their own tax advisor about their own tax situation before investing in any securities.
Important Information About Sustainable Investing Strategies: Sustainable investing strategies aim to consider and incorporate environmental, social and governance (ESG) factors into investment process and portfolio construction. Strategies across geographies and styles approach ESG analysis and incorporate the findings in a variety of ways. Incorporating ESG factors or Sustainable Investing considerations may inhibit the portfolio manager’s ability to participate in certain investment opportunities that otherwise would be consistent with its investment objective and other principal investment strategies. The returns on a portfolio consisting primarily of sustainable investments may be lower or higher than portfolios where ESG factors, exclusions, or other sustainability issues are not considered by the portfolio manager, and the investment opportunities available to such portfolios may differ. Companies may not necessarily meet high performance standards on all aspects of ESG or sustainable investing issues; there is also no guarantee that any company will meet expectations in connection with corporate responsibility, sustainability, and/or impact performance.
External Asset Managers / External Financial Consultants: In case this research or publication is provided to an External Asset Manager or an External Financial Consultant, UBS expressly prohibits that it is redistributed by the External Asset Manager or the External Financial Consultant and is made available to their clients and/or third parties.
USA: This document is not intended for distribution into the US and / or to US persons.
For country information, please visit ubs.com/cio-country-disclaimer-gr or ask your client advisor for the full disclaimer. Version B/2021. CIO82652744
© UBS 2021.The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.