Wealthy investors are holding more cash just in case of a full-blown trade war, Ermotti told CNBC's Michelle Caruso-Cabrera in an interview that aired on "Squawk Box." He said he's talking about "something that goes into a territory where the escalation of measures that are taken starts to impact business sentiment."
The tariffs that President Donald Trump announced on Friday against Chinese imports are set to start July 6. China is promising retaliatory measures. The White House also recently hit U.S. allies Canada, Mexico and the European Union with steel and aluminum import tariffs, a move that also was met with retaliatory measures.
"I'm really worried that ... these things are going to get out of control. Somebody is going to announce something that then triggers a more serious issue," Ermotti said, stressing trade risk "could come from any side, Europe, U.S., China; you name it."
Extreme protectionism could become a real problem if there are any other unexpected events such as the Federal Reserve accelerating the path of interest rate hikes, he said.
"Asset classes are priced quite high across the board. Expectations for business profitability are quite high. The financial markets are not ready for any major discontinuity ... in commercial ties between countries," Ermotti said.
The chief executive at UBS, one of the world's biggest managers of billionaires' money, described stocks as not yet priced to perfection but getting close. "You can still see value in equities" for the time being.