Stick to stocks while bonds and cash look 'toxic' amid inflation, says UBS' Global Wealth Management CIO

"There are no alternatives to equities in some ways because the bonds look toxic, and with inflation cash looks toxic," Haefele told Bloomberg TV.

• The market is signaling that there's no alternative to stocks, according to UBS Global Wealth Management CIO Mark Haefele. 
• Amid high inflation and Fed rate hikes, bonds and cash are "toxic," he told Bloomberg TV.
• UBS likes energy-related equities and commodities, and expects energy demand to remain high even beyond COVID-19 and war in Ukraine.  

The best bet for investors amid high inflation and a hawkish Federal Reserve is stocks, according to UBS Global Wealth Management CIO Mark Haefele.

Last week, the Fed raised benchmark rates to combat inflation, which is at the highest in 40 years, by lifting them from near zero to 0.25%-0.50%. Markets are pricing in additional increases that eventually will take the rate to 2.5%, and the 10-year Treasury yield has shot up, he told Bloomberg TV. 

"This response in the equity markets kind of says…there are no alternatives to equities in some ways because the bonds look toxic, and with inflation cash looks toxic," Haefele said.

When asked at what point bond yields will look more attractive relative to stocks, he replied that there's much that is out of the control of markets and instead is in the realm of politics.

In particular, Western sanctions against Russia over its invasion of Ukraine and the response in commodities market are in focus.

"We think that the market right now, in the short term, is really going to be pricing off an understanding of ... peak sanctions and oil prices, and that's a political decision," he said.

But there is still a lot of uncertainty on how much further sanctions will go, Haefele added, noting that polls in Germany show strong support for them to get even tougher even if it means more supply disruptions. And a sudden drop in energy supplies could send Europe into recession, he warned.

Amid all the uncertainty, UBS is still bullish on commodities and energy-related stocks. In fact, there's a chance energy remains elevated even after the war ends and the pandemic fully subsides, Haefele predicted. 

"It's not just about supply disruptions around Ukraine, but there's a drought on pretty much every continent except Australia … and as we come out of COVID the demand will be energy is going to remain strong and be strong through the second half of the year," he said.