According to fund managers and strategists from JPMorgan Chase & Co., UBS Group AG, and Morgan Stanley, the threat of a recession is making investors view bonds as a safer choice than stocks. Experts argue that bonds, particularly high-rated ones, are better equipped to handle any economic slowdown, whereas stocks could face significant challenges if the Federal Reserve is unable to provide a soft landing.
One indicator of this trend is the gap between the yield on high-rated dollar-denominated bonds and the dividend yield of companies in the ACWI MSCI Inc. index, which has increased by almost 90 basis points over the past year.
UBS Global Wealth Management has raised bonds to the most preferred asset class and lowered stocks to the least preferred, viewing high-rated bonds and developing market government bonds as a safer investment option, particularly during a possible recession.
Hartmut Issel, head of APAC equity and credit at UBS Global Wealth Management, recommends investing in high-rated bonds and being selective in choosing stocks in developing markets.
