Risk Appetite Still Dire, Lowest Levels Ever: UBS CEO

Even as 2013 is turning out to be a breakout year for major stock markets, with the recent rally taking U.S. equities to record highs, the group CEO of the world's second largest private bank says risk aversion among its clients is at the highest ever seen in the industry.

"Clients' risk appetite remains... almost paralyzed, (with) very high level of cash balances. And this has been the case for the last seven quarters," UBS group CEO Sergio Ermotti told CNBC's "Closing Bell" on Wednesday.

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This isn't the first time Ermotti has voiced concerns about very low risk appetite among clients. Back in February, he gave the same reason for reporting weak client inflows. The difference, Ermotti noted, is that investors today are getting frustrated sitting on the sidelines.

"It's the higher it [equity market] goes, the more nervous people get and frustrated at not being in the market," Ermotti said.

Benchmark U.S. stock indexes have been in a bull-run since mid-November, with the S&P 500 and the Dow Jones Industrial Average up around 19 percent, both notching record finishes during the period. Japan is the outperformer - the Nikkei 225 is up almost 49 percent in that time, thanks to the government's radical policies to kick-start the flagging economy.

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According to Ermotti, investors still want to see a resolution, not a short-term fix, to the problems in the euro zone, along with how the U.S. Federal Reserve is going to make a "clear path" out of its quantitative easing policies.

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"The impact of such a potential move of the Fed in the future, how that would affect the economy (and sustain) the recovery that we have seen in the last few quarters - that's going to be the test that investors will want to see," he said.

There has been growing uncertainty in the markets about whether the U.S. Fed would roll back it massive bond-buying program this year, and investors are awaiting the upcoming U.S. monthly payrolls report on Friday for signs of weakness in the world's largest economy.

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Ermotti said the number of the bank's accounts in cash is similar to Swiss competitor Credit Suisse, which has said that one-third its clients are hoarding cash. This level underscores the conservative nature of the industry.

"We are really at levels of risk aversion ever seen in the industry," Ermotti said.

— By CNBC.com's Rajeshni Naidu-Ghelani. Follow her on Twitter @RajeshniNaidu