Monday’s relief rally in response to a delay to U.S. strikes on Iranian energy infrastructure offers an opportunity for investors to rotate into defensive assets, according to UBS analysts. UBS says it remains “positive” on equities overall but the bank has now issued a downgrade on European and Indian equities, both of which it now rates as “neutral.” Instead, investors should “use the bounce to diversify excess exposure to at-risk equity markets, in favor of structural growth and defensive markets,” UBS wrote in a note published Tuesday morning. UBS analysts said European equities are pro-cyclical and particularly sensitive to higher oil and gas prices, owing to the bloc’s lack of energy self-sufficiency. Higher energy prices could also undermine a recovery in manufacturing, it added. The analysts also see a particular vulnerability to energy price shocks in India, which is a significant importer of foreign oil, liquefied natural gas and liquefied petroleum gas from the Middle East. “Higher energy prices look set to widen the current account deficit, add to fiscal pressures, and slow growth,” they wrote. Swiss stocks show resilience By contrast, UBS said Swiss equities offer less exposure to energy disruptions at an attractive valuation point after falling more than 10% since the start of the conflict. Outside of equities, UBS said investors should use the recent gold sell-off to gain exposure to the yellow precious metal. “Over the medium term, we would still expect gold to rally substantially if geopolitical uncertainty remains high while interest rate expectations come down,” wrote UBS. “We continue to view gold as an effective long-term portfolio hedge and forecast higher prices ahead.” Other analysts have also flagged potential contagion risks around underlying exposures to the Iran war. Last week, MSCI published a note highlighting emerging Asian markets as the most vulnerable to oil-supply disruption through the strait .