The economic and markets outlook has brightened on the back of improved US prospects and central bank credit policy, UBS’s wealth management arm said yesterday, although it held back from turning bullish on the stock market.

The Swiss firm recommends a neutral stance on equities, while corporate assets – debt – looked more attractive due to the very low yields available on European and US sovereign bonds and the looming risk of rising inflation.

“More substantial risks keep us from becoming even more positive on equities… several large economies are facing elections, for example, France, Greece, China and the US, which increases political risk. Furthermore, tensions surrounding Iran’s nuclear programme are likely to persist,” UBS said in a regular note from Sandro Merino, head of wealth management research in Europe.

There is, however, more upside potential for the equity market, as their fundamental value looks attractive even after the recent rally in prices, it said.

“We prefer the US and UK among developed equity markets. In Europe, we recommend taking a selective approach with a strong focus on value stocks, i.e. undervalued stocks. Emerging economies’ superior growth prospects look intact after a recent soft patch,” it said.

On the currency front, UBS said it is positive on sterling and certain “minor” currencies such as the Canadian dollar and Scandinavian currencies.

“We also expect Asian currencies to remain on a secular appreciation trend, along with the gradual strengthening of the Chinese yuan,” UBS added.