UBS Economics-Global Economics Strategy _Global Asset Allocation in an U...-119170490

ab3 December 2025Global ResearchGlobal Economics & StrategyGlobal Asset Allocation in an Uncertain and Fragile Environment(SUERF conference at Bundesbank)This report has been prepared by UBS AG London Branch. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 18. EconomicsGlobalArend KapteynEconomistarend.kapteyn@ubs.com+44-20-7567 0531Global Economics & Strategy 3 December 2025ab 2Thoughts on asset allocation•Can we explain the price action in 2025? ➢ Are tariffs still affecting markets?➢ Large residuals in gold models➢ Large risk premium in USD in H1 (rate differential regime breaks down) but reverse in H2➢ Fixed income curves steepened with tariffs but did not flatten with de-escalation?•The two most liquid hedges (USD and UST) stopped working as safe havens•Other thoughts: ➢ USD – no rotation/de-dollarization = recovery USD post Q1➢ Fixed income – CB rates stabilizing at neutral + no change duration supply = range-bound yields➢ Equity – expensive but well supported by earnings growth in ’26 + too soon to disprove the AI thesisGlobal Economics & Strategy 3 December 2025ab 3S&P (equity) – mostly affected by tariffs and monetary policySource: UBS, BloombergGlobal Economics & Strategy 3 December 2025ab 4Move index (bond market volatility)- more affected by Fed independence debate than tariffsSource: UBS, BloombergGlobal Economics & Strategy 3 December 2025ab 510y Breakevens – the ‘Fed independence threat’ variable had no impact on breakevens (but can explain nominal steepness curve)Source: UBS, BloombergGlobal Economics & Strategy 3 December 2025ab 6Gold – large residuals vs our model Source: UBS, BloombergGlobal Economics & Strategy 3 December 2025ab 7Gold – explaining price action with event-targeted VAR approachSource: UBS, BloombergGlobal Economics & Strategy 3 December 2025ab 8US dollar – was mostly about tariffs and monetary policy (+ data)Source: UBS, BloombergGlobal Economics & Strategy 3 December 2025ab 9How much can the event-targeted VAR explain?Source: UBS, BloombergGlobal Economics & Strategy 3 December 2025ab 10Have safe havens changed? (1)Source: UBS, BloombergSource: UBS, BloombergCharts show returns (z-scores) during drawdowns of 5% or more for the S&P and the correlation with the S&P during those drawdowns. The drawdown approach intends to capture behaviour during longer periods of equities’ underperformance.Global Economics & Strategy 3 December 2025ab 11Have safe havens changed? (2)Source: UBS, BloombergSource: UBS, BloombergCharts show returns (z-scores) for different assets during the worst 5% of days for the S&P and the correlation with the S&P during those drawdowns. The ‘worst days’ approach intends to capture asset behaviour during times of acute market stress.Global Economics & Strategy 3 December 2025ab 12The Magnificent 7 are driving US investment, but their market valuation went up 50x faster than their investment levelGlobal Econo