According to UBS Investment Bank’s chief strategist, global economic conditions will change next year and that will turn around underperforming markets and sectors. Bhanu Baweja told CNBC’s “Squawk Box Europe” on Wednesday that between one-third and one-half of the countries the bank covers globally are facing a recession. “It’s an inch deep, but it’s a mile wide,” he said of the expected recession. “Global growth is at 2% and that’s not priced into stocks.” UBS expects the US consumer price index, which excludes volatile food and energy costs, to come in below 0.3% for the month. As such, Baweja said market expectations for a restrictive Federal Reserve will fall somewhat, which will benefit companies’ price-to-earnings ratios. Earlier this month, lower-than-expected inflationary pressures in October led to a tentative market rally. Baweja pointed to the S&P 500’s underperformance year-to-date, down 15.5% from the European Stoxx 600’s 9.6% decline. “It’s because this was a valuation year, this was a year where your risk-free rate, your real rate, your two-year real rate, moved 500 basis points, so this was a de-rating year,” he said. . But the problem next year will be revenue, Baweja said, especially given the headwinds of the recession. He expects equity returns to be “pretty normal” next year given competition from high bond yields, but he sees US equities outperforming European ones. “Life isn’t zeroes and ones and black and white, but when most of the trouble is going to be next year [earnings], then Europe is in more danger than the US,” Baweja said. A turnaround will also be seen in sectors, he predicted. Cyclical sectors performed extremely well — materials and energy. These are sectors that most people would consider cyclical , these are sectors that have done extremely well and that’s why cyclical stocks have maintained such high levels,” he said, citing financial stocks with solid balance sheets. But he stressed that a number of factors will change as you move toward global growth of close to 2%, “which is as close to a recession as possible.” “Next year I think it’s going to be much more defensive than cyclical, so your classic utilities, tech, possibly health care, these will probably do much better, and even some consumers will probably do much better than the producer side of the economy, namely materials and industry,” added Baweja.