UBS WM cuts emerging markets exposure as U.S.-China spat flares up

LONDON (Reuters) - UBS Wealth Management cut its exposure to emerging market stocks and bonds late on Thursday, changing its portfolio as an intensification of China-U.S. trade tensions bruised markets, the asset manager said in a note on Friday.

UBS WM closed its overweight position in EM equities relative to Swiss equities, chief investment officer Mark Haefele said in the note.

"Valuations across emerging markets remain attractive, but uncertainty about the impact of trade negotiations on global growth is likely to weigh on sentiment in the near term," he wrote, saying the Swiss market's defensive properties would help it perform in volatile markets.

The Swiss asset manager also closed its overweight position in emerging market hard currency sovereign bonds versus U.S. government bonds.

"The spreads on emerging market bonds have remained resilient even as trade tensions have escalated, a testament to their solid fundamentals, but the spreads are likely to widen if additional tariffs increase growth concerns," the note said.

In currency positioning, UBS Wealth Management added an underweight position on the Australian dollar versus the U.S. dollar, saying the currency is sensitive to the economic cycle and suffers when investors become more risk-averse.

"Australia is heavily exposed to Chinese trade flows, and we think the Reserve Bank of Australia may be preparing for a rate cut," Haefele wrote.

Talks between China and the U.S. were continuing on Friday morning, with investors hoping for a deal after higher tariffs on $200 billion of Chinese imports kicked in.

(Reporting by Helen Reid; editing by Josephine Mason)