Equities Vulnerable to Policy Risks

Investors looking to get into equities should brace themselves for a volatile ride due to the potential policy risks and mistakes made by regulators, warned Paul Donovan, managing director and deputy head of global economics at UBS.

"You are also vulnerable to the regulatory risks," Donovan said on CNBC's Protect Your Wealth, adding that investing in international companies does not necessarily help to evade these risks.

"We are going to see restrictions in terms of globalization," he continued.

Donovan recommends investors position defensively within equities, highlighting his bullishness on U.S. and Japanese equities for two main reasons: U.S. growth is outperforming the European Union, and the revaluation of the yuan will help Japanese exporter stocks.

Investors should also look for companies with "proven track record(s)" of "decent high-yield dividend". He adds that corporate credit and government bonds are safe options.

When asked about how to navigate the gold markets, Donovan said he wasn't "wildly enthusiastic" about the yellow metal, but does see some upside for the commodity.

"Investor demand for gold coins and for gold bars has faded a bit in the last couple of months. That momentum is a little bit weaker."

Donovan forecasts the price of the precious metal will reach $1,300 per ounce by the end of 2010, and $1,500 by the end of 2011. However, he points out that "gold is underperforming some other commodities on that basis."

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Catch "Protect Your Wealth" on CNBC's Asia Pacific network every Tuesday on "CNBC's Cash Flow," Wednesday on "Asia Squawk Box" and Thursday on "Capital Connection."