UBS Wealth Management, which has recently cut exposure to emerging market corporate bonds in preference for US high-yield credit, is maintaining these positions amid an expectation that emerging market assets have turned volatile.

The Swiss firm in June exploited the sell-off in US high-yield credit to increase its overweight position in the asset class, and reduced EM corporate bonds to neutral due to concerns over fundamental growth in the region.

“With no change to our fundamental view this month, we are making no changes to our asset allocation, continuing to favor US assets, namely equities, high yield credit, and the US dollar,” Alexander Friedman, global chief investment officer, UBS Wealth Management, said in a monthly note.

In other areas, UBS is maintaining its overweight position in Japanese equities, it said.

Last weekend's victory in the recent upper house elections by prime minister Shinzo Abe’s LDP party, giving it control of both houses of the Diet, now has a clear mandate for reform, which UBS expects to move ahead more forcefully.

“In the coming months, we expect to see progress on reforms to Japan’s labor market, which could help mitigate the country’s poor demographic outlook and other new initiatives such as new special economic zones and a lower corporate tax aimed at boosting market sentiment,” it said.

“Overall, given the changing winds in EM we think it best to avoid sailing altogether and seek a vessel with a motor,” the bank, using a yachting metaphor, said of its asset allocation stance.

“The standout in this respect is the US. The US dollar’s status as the world’s reserve currency and primary medium of exchange ensures stable capital inflows into the US, which remains our preferred region. Rising house prices, an improving labor market, and responsive monetary policy are providing a further boost. As such, we have kept our overweight positions in the country’s equities, high yield credit market, and currency,” it added.