UBS outlines an ‘enormous opportunity’ to buy up high-quality stocks and bonds following a sharp sell-off in recent weeks

People stand under a sign of Swiss banking giant UBS at their headquarters on May 8, 2019 in Zurich.

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People stand under a sign of Swiss banking giant UBS at their headquarters on May 8, 2019 in Zurich.
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FABRICE COFFRINI/AFP/Getty Images
  • Weeks of widespread selling and credit stress leave some assets primed for outsized gains, UBS said Monday.
  • Stock sell-offs saw equities across all S&P quality rankings tumble about the same amount, creating “an enormous opportunity to own high-quality names” when the virus threat subsides, Solita Marcelli, deputy chief investment officer for the Americas at UBS, wrote in a note to clients.
  • The Federal Reserve’s plans to buy corporate debt and credit ETFs make both asset classes far safer to own, the firm added.
  • A new repo facility created by the Fed to provide dollars for foreign central banks eases currency concerns in emerging markets and makes EM debt “one of the most appealing areas to own at the moment,” Marcelli said.
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With few markets insulated from coronavirus-driven price swings, UBS recommends investors beat the rush to oversold assets.

Recent sell-offs saw “the baby thrown out with the bathwater” as equities across all S&P quality rankings slipped roughly the same amount, Solita Marcelli, deputy chief investment officer for the Americas at UBS, said in a Monday note.

The broad US equities market remains in bear territory following the fastest such dip in history. The mass exodus from risk assets now leaves stocks with sturdy balance sheets and “long-term cash generation power” at extremely attractive levels for value buyers, she added.

UBS

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UBS

“This has created an enormous opportunity to own high-quality names that will differentiate themselves once the dust settles,” Marcelli added.

Read more: RBC says coronavirus-battered stocks could plunge another 28%. Here are the areas of the market they say will thrive when the dust clears.

Those looking to avoid stocks’ heightened volatility can still find plenty of good deals in the bond market. Credit market stress drove prices to fresh lows in mid-March before Federal Reserve purchases revived the sector. With the central bank poised to begin buying corporate bonds and credit exchange-traded funds, both asset classes have “become much safer to own,” UBS said.

The central bank’s latest aid measure sets emerging-markets debt up for a steady rally. The pandemic brought “significant deterioration” to the bond class as nearly all economies shut down and governments shifted focus to containing the outbreak, UBS said. The Fed’s new repo facility for foreign central banks gives developing nations a new pool to tap for dollars and directly addresses concerns of a currency shortage.

The policy support and low prices make emerging-market bonds “one of the most appealing areas to own at the moment,” Marcelli said.

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