UBS Macro Hu Yifan Predicts Mild Recession for US Economy in Second Half of Year; Advises Bond Investment
In a recent analysis of the macroeconomic development of the United States, Hu Yifan, investment director and macroeconomic director of UBS Wealth Management Asia Pacific, stated that most investment banks expect negative growth in the U.S. economic data in the second half of the year. However, she also believes that the recession will be mild in terms of combined GDP and unemployment rate.
While the U.S. economy is expected to enter a recession, Hu Yifan suggests that there is no systemic risk in the U.S. banking industry. She points to the stability of the fundamentals of the U.S. banking industry, with the top 10 banks holding half of the country’s assets. Additionally, U.S. regulators are expected to take active actions to avoid systemic risks.
Looking at the global perspective, Hu Yifan is more optimistic about bonds in the second half of the year. She predicts that there may be pressure on stocks due to the mild recession in the U.S. economy. If the recession is higher than expected, it could negatively impact both stocks and bonds, but bonds are considered relatively more stable. Hu Yifan particularly favors investment-grade and high-grade bonds, which she believes will become attractive as the Federal Reserve cuts interest rates.
Hu Yifan also speculates that the weakening of the U.S. dollar may begin in the second half of the year if the Federal Reserve does not raise interest rates. This weakening is expected to be relatively weak, affecting not only developed economies but also emerging countries. As a result, she suggests that emerging market bonds may offer better returns if the U.S. dollar weakens.
In terms of equity, Hu Yifan highlights the expensive valuations of high-tech stocks in the U.S. Instead, she is optimistic about sectors that have not yet seen a rise in the second half of the year, such as must-have consumer goods, industrials, and utilities. Additionally, emerging markets are currently priced at a more than 30% discount compared to European and American stock prices, which may present opportunities in the second half of the year, especially as the economies of China and the United States begin to diverge.
These insights from Hu Yifan suggest that the U.S. economy may experience a mild recession in the second half of the year. However, she remains optimistic about the prospects of bond investment and advises careful consideration of investment decisions.