UBS AG : UBS Global Asset Management: Fate of Eurozone Dominates Cyclical Market Forum

The UBS GLOBAL ASSET MANAGEMENT Cyclical Market Forum, held quarterly to discuss three plausible economic scenarios and their potential implications for investments over the next 12 months, found its Q2 Forum dominated by discussion of a potential Eurozone break-up. Three market scenarios are proposed at each Cyclical Market Forum and debated by UBS investors from across the world, including representatives of investment teams with combined assets under management of more than USD600billion.

UBS Cyclical Market Forum Q2 Economic Scenarios Under Consideration

• Scenario 1: Tentative continuation of the status quo, with a delay of major decisions until a future crisis necessitates intervention.
• Scenario 2: Greek exit from the Eurozone, prompting intervention from central banks to limit contagion.
• Scenario 3: Greek exit from the Eurozone, followed by uncontrolled contagion starting in Europe and then spreading throughout the globe.

Slightly more than 50% of the forum's Global Asset Management investment participants voted scenario one as most likely, approximately one-third voted scenario two as most likely and the remainder voted for scenario three. An uneasy status quo seems most likely for now.

Key Forum Insights - UBS Global Asset Management:

Curt Custard, Head of Global Investment Solutions, Chairman of the Cyclical Market Forum

"We see the first scenario--a 'game of chicken'--as the most likely outcome. Even if we kick the can down the road, which is the most positive scenario that we discussed, the current levels of uncertainty are already impeding investment and hurting growth."

Joshua McCallum, Senior Fixed Income Economist

"The victory of the pro-bailout parties in Greece has reduced, for the moment, the probability of a Greek exit from the Eurozone. The 'Grexit' threat clearly has not gone away, but at least there is some breathing space."

Jonathan Gregory, Senior Fixed Income Portfolio Manager

"Whilst the outcome is still highly uncertain, the policy response to the crisis is already underway globally. Australia and China have cut interest rates; new capital to support Spanish banks will be provided; Denmark and Sweden have eased rules on discount rates to help insurers' solvency positions. And there are clear signals of more to come, such as quantitative easing from the Bank of England."

Thomas Digenan, US Equity Strategist

"In our US portfolios, we see the recovery of the US housing sector as potentially a far bigger story than what's happening in Europe. We are currently positioned very aggressively and see a lot of potential upside in the current market."

Mark Rider, Global Investment Solutions Strategist

"None of these three scenarios is positive in the short term for commodities. However, scenario one is consistent with a recovery into the first half of 2013. This is in contrast with the much weaker outlook in the recessionary scenario three."

Elisabeth Troni, Global Real Estate Strategist

"The real estate market is seeking liquidity almost at all costs. Based on very attractive valuations and high risk premia, we'd expect investors to be buying more. Instead, investors are looking for safety."

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UBS Global Asset Management is a large-scale asset manager with well-diversified businesses across regions, capabilities and distribution channels. It offers investment capabilities and investment styles across all major traditional and alternative asset classes. These include equity, fixed income, currency, hedge fund, real estate, infrastructure and private equity investment capabilities that can also be combined into multi-asset strategies. The Fund Services unit provides professional services including legal fund set-up, accounting and reporting for traditional investment funds and alternative funds. The three economic scenarios discussed should not be considered forecasts.

Invested assets totalled some CHF 559 billion (EUR 465 billion, GBP 387 billion, USD 620 billion) at 31 March 2012. The firm is a leading fund house in Europe, the largest mutual fund manager in Switzerland and one of the largest fund of hedge funds and real estate investment managers in the world.

With around 3,700 employees, located in 25 countries, we are a truly global firm. Our principal offices are in London, Chicago, Frankfurt, Hartford, Hong Kong, New York, Paris, Singapore, Sydney, Tokyo and Zurich.

About the Cyclical Market Forum

Assessing the economic and market environment is a key part of UBS Global Asset Management's investment strategy-setting process across all investment areas. Our Cyclical Market Forum, open to representatives of all investment teams, regularly debates important economic and market themes and their potential impact on our investment strategies. The Forum's purpose is to examine the main economic and market drivers - typically through scenario analysis over a 12 to 18-month time horizon - and to foster debate between the teams managing different asset classes.

The way in which the output from the Forum is used varies across UBS Global Asset Management's investment teams and it is just one of a number of inputs into each team's investment process. One of the key benefits of the Cyclical Market Forum is the opportunity to exchange research and viewpoints from the various investment specialists and to examine the intersection between top-down and bottom-up drivers. As such, it broadens the input into our strategy-setting process in a structured format.

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