UBS Warns U.S. Growth And Tech Investors, Prefers Germany

Investors who benefited from the recent rally in tech and growth stocks might benefit from some caution, says a recent report from Swiss-based bank UBS.

“As we think that technical factors may have played a large role in the market performance so far this year, we expect this to eventually wane as fundamental factors resume the dominant position as market drivers,” writes Mark Haefele, Chief Investment Officer at UBS Global Wealth Management . “Therefore, we advise investors to be cautious of those assets that were the biggest beneficiaries of such flows, like growth and tech equities.” His emphasis.

In other words, don’t expect the rally to continue indefinitely and perhaps take some profits.

Haefele also warns investors to diverisfy, notably to overseas markets including Germany. “We expect emerging market and German equities to be among the main early beneficiaries from an inflection point in global growth in 2023,” he writes.

The UBS doesn’t say this specifically, but Germany is the industrial powerhouse of Europes economy and will no doubt benefit from moderating energy prices, as well as a surge in defense spending.

In addition, many of the countries that purchased Leopard 2 tanks from Germany are now planning to send them to Ukraine, and will likely wish to buy more of the military vehicles as replacements. The reason: Maintaining strong defense is now near the top of the agenda across the west following last year’s Russian invasion of Ukraine.

Investors wanting to benefit from the likely uptick in Germany stocks, might consider buying the Global X DAXDAX
Germany ETF. Alternatively, for those who worry about changes in the value of the dollar versus the euro, the iShares Currency Hedged MSCI Germany ETF.

The latter will remove the uncertainty of whether the dollar will move in value. However, the former charges annual fees of 0.2%, which at 0.53% is less than half those of the latter. In other words, theres a choice that investors need to make over certainty versus cost.

The DAX ETF has already rallied 22% over the last three months versus 17% gains for the Hedged ETF, according to data from Yahoo.