Another key concern is the Chinese renminbi. In our base case, we expect it to weaken, but only modestly, toward 6.80 against the U.S. dollar in 12 months. In this scenario, we do not believe that the yuan would act as a major driver for financial markets. However, a key risk to this view is the possibility that a disorderly depreciation of the Chinese renminbi, or uncertainty over its management, drives greater regional currency volatility and global deflationary pressure.
With respect to the Middle East, we do not believe this latest rise in tensions between Saudi Arabia and Iran is sufficiently severe to alter the outlook for global oil markets in 2016. That said, investors will need to continue to monitor the situation in case of a more serious deterioration in relations.
Overall, we are keeping our positioning unchanged and believe that global growth will ultimately support current valuations, and even an additional appreciation of riskier assets. However, further deterioration in credit spreads, currency moves in China, and developments in the Middle East are areas where we see a heightened need to monitor for risks.
Commentary by Mark Haefele, global chief investment officer at UBS Wealth Management, overseeing the investment strategy for $2 trillion in invested assets. Follow UBS on Twitter @UBSamericas.
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