UBS Warns Investors of Stagflationary Risks, Flagging It as a Looming Economic Threat

With persistent inflation and sluggish growth, this combination could pose a significant challenge for markets in the near future.

Investors were warned by UBS on Thursday of the impending threat of stagflation, a combination of bleak.

What happened: Persistent inflation and sluggish growth could be a recipe for trouble in the financial markets, according to Iqbal Khan, President of Asia Pacific at UBS Group AG (NYSE: UBS)

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While the threat of recession has been widely discussed, Khan highlighted an alternative scenario that is unfolding as central banks aggressively raise interest rates to curb inflation.

“The big question in people’s minds is, are we going into a period of stagnation and high inflation, which will indicate stagflation,” Khan said during his remarks at Bloomberg’s Family Office Summit in Hong Kong.

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Central banks across the globe are tightening their monetary policies to counter inflation, which has been more sticky than anticipated.

Trade disruptions, supply chain bottlenecks, and geopolitical tensions are still impacting the global economic outlook, adding another layer of complexity.

The U.S. and China are locked in a trade war, with tariffs on key goods, such as rice and wheat, being imposed, ultimately driving up production costs and contributing to the inflation cycle.

Despite these challenges, Khan highlighted the emerging opportunities in different regions. He noted that Europe is showing signs of renewed focus, and both China and Europe offer relatively lower-cost investment options, even with short-term challenges.

"We see opportunities in Europe, which is coming out of the lethargy it had in the last 10 years. People are looking at Europe again, and there’s a new focus on Europe, which bodes well for the continent’s recovery," he added.

"We prefer Greater China and Europe because they are relatively lower-cost. The U.S. market is fully valued, and we prefer to be more selective in our investment strategy in that region."

What is new: UBS is expanding in Asia, and the investment bank is currently building a new office tower in Hong Kong’s West Kowloon district, which is set to open in 2026.

The bank is also planning to invest in new technologies and talent to support its growth ambitions amid fierce competition from local players like DBS Group Ltd (OTC: DBSGY) and HSBC (NYSE:HSB).

What is next: As the world’s second-largest economy navigates new lows in youth unemployment and a post-COVID recovery, units in the Chinese currency hit a 16-month low against the dollar on Thursday.

Last week, China reported that its second-quarter GDP grew by a meager 0.8% compared to the previous quarter, a significant slowdown from the 1.3% quarter-on-quarter expansion in the first quarter. Economists polled by Bloomberg had anticipated a 0.5% quarter-on-quarter rise.

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