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Remain cautious and pick ‘growth' trades in 2017: UBS

One should be "cautious" in the new year when looking for investment opportunities, given that 2017 could bring significant political changes while markets also re-adapt to an environment of higher yields, an UBS strategist said.

The best way to navigate through the volatility in the new year is by "combining risks," Yianos Kontopoulos, global head of macro strategy at UBS, told CNBC on Wednesday.

"The market has priced significantly both higher growth and higher inflation starting in the U.S. and then globally. I'd say the risk reward giving what's priced in is better on the growth side as opposed to inflation. And starting from that we're looking then for places, let's call them growthy type of trades," he added, naming currencies as a "very good place to look".

Among currencies, one should be looking at those that seem to have been forgotten and haven't yet priced in the changes to a global environment of higher growth and higher inflation.


"The dollar has already priced a lot of the paradigm shift that people are really interested in pricing for 2017. So it's where the remainder is that you really want to pick up and that's the growthy part," Kontopoulos said.

One of the "forgotten" currencies is the Australian dollar, which has already been hit by higher yields but not by higher growth expectations, he explained.

Another area to look at is European equities. These have been under some market negativity in the wake of the financial crisis, but according to Kontopoulos, one should notice that there's economic growth even outside core countries, including Ireland and Portugal.

"I think this is definitely an unloved sector, where you actually had pretty consistent growth and more importantly I'd say you have clearly a very accommodative policy-maker, so you have to be a bit more gradual on the sectors," Kontopoulos added.

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