Advisors take heed: Investment firm UBS Wealth Management is announcing a reduction in its recommendation for equity weightings in portfolios from “neutral” to “moderate underweighting,” with a corresponding increase in cash holdings.

Mike Ryan, chief investment strategist at UBS Wealth Management Research, writes, “We are concerned that the low growth momentum that developed economies are currently exhibiting leaves almost no room for any shock or policy error.”

Meanwhile, he notes that the risk of such shocks occurring are significant. He cites “further financial stress in the Eurozone,” which he says could continue for the next three months, as well as a mounting risk of recession in developed economies, including the U.S.

Within equities, Ryan and his team are recommending a reduced exposure to emerging markets.

Ryan says that the recent run-up in stocks is not a sign that equity markets have hit their bottom, but is simply a “temporary respite.”  He says both U.S. and European economies could “easily be tilted into recession,” and warns that a Greek default is now “likely” within the coming six months.  As evidence, he points to a convergence in the price of two-, five- and 10-year Greek securities, which he says means “the market is no longer focused on promised yields, but rather on expected recovery values” in the event of a default.

Should such a default occur, he says, “We struggle to see how this could happen without some collateral damage.”

Adding to concerns about equities, Ryan said, is “political paralysis on both sides of the Atlantic during the summer,” which he says has further eroded investor and consumer confidence and which could delay any economic rebound.

Ryan lists the chance of a new U.S. recession at one in three. He adds, “Although markets already appear priced for a fair amount of bad news, it’s likely that risk assets will come under even further pressure amid softer economic data and a continued ratcheting up of political risks.”

Adding to the gloom, Ryan said UBS expects the consensus forecasts for GDP growth in both Europe and the US to be revised downward in the coming months.

In terms of making a global economic forecast, UBS puts the probability of a strong recovery at just 5%, a moderate recovery at 55%, a recession at 30%, and a period of stagflation, with both rising prices and weak growth, at 10%.