Here's how investors can position for a potential recession and global banking turmoil, according to UBS Wealth Management's CIO

• UBS Global Wealth Management's CIO breaks down how to invest amid harsh macroeconomic conditions. 
• In a recent note, Mark Haefele says US stocks will face more volatility through 2023. 
• Instead, investors should look to certain quality bonds to lock in attractive yields.

Investors are wading through murky macroeconomic waters while trying to position their portfolios in the midst of rising recession fears and ongoing banking turmoil.  

The Federal Reserve has been on a aggressive mission to fight high inflation while jacking up interest rates for over a year. Now, concerns are growing that high rates and the tightening of financial conditions in the US will spark a recession. 

Meanwhile, markets are still reacting to contagion concerns following the collapse of Silicon Valley Bank earlier this month, the largest bank failure since the 2008 financial crisis. 

Confidence in financial markets is fragile, Chief Investment Officer of UBS Global Wealth Management, Mark Haefele says, and volatility is likely to remain high for the foreseeable future. 

"Nonetheless, financial conditions are likely to tighten, increasing the risk of an economic hard landing even if central banks ease off on interest rate hikes," Haefele said in a recent note. "In the months ahead, various banks are likely to restrict lending in order to build up their liquidity buffers."

As the market price in a myriad of economic calamities, the investment chief broke down how investors can position themselves during various market swings.

First, investors should keep their long-term financial goals in mind and avoid making rash choices with their money in response to short-term swings. 

"Consider opportunity costs and reinvestment risks alongside market risks," the note reads. "History has taught us that for well-diversified investors, the greatest threat to real wealth tends not to come from being invested through periods of short-term volatility, but from being under-invested over the long term."

In terms of positioning, the UBS exec says traders can boost their exposure to bonds because of the decent yields and "the potential for capital gains in the event of a deeper economic slowdown."

"Investors holding excess cash should consider opportunities to lock in today's yields within the asset class," he said, adding that the firm prefers government and investment grade bonds, along with emerging market and sustainable bonds.

Haefele added: "We are more cautious on corporate high yield credit given deteriorating corporate fundamentals and the risk of spillover from banking sector stress."

US stocks will deliver limited returns as volatility snarls equity markets for the rest of 2023, but this doesn't mean investors should sell panic sell. In particular, US stocks and growth-oriented names face risks from the potential for a decline corporate earnings, central bank tightening, and the context of high valuations.

"Within the asset class, we recommend diversifying beyond the US and growth stocks given elevated valuations and rising risks to the US economy," Haefele said. "We do, however, expect positive performance from emerging market equities, including China and Asian semiconductor stocks, and select European themes, including German equities."

Haefele says investors should start preparing for a weaker US dollar as well, adding "safe-haven flows have supported the greenback in recent weeks, but elevated valuations and an approaching end to the Federal Reserve's rate hikes mean we expect the US currency to weaken over the balance of the year."

In currencies, the firm prefers the Swiss franc, euro, Australian dollar, British pound, and Japanese yen. 

"Elsewhere, we see opportunities to add return and diversification to portfolios through select real assets, including broad commodities and infrastructure; alternative assets, including hedge funds and private markets; and sustainable investments, including sustainable bonds and equity themes," Haefele added.