UBS sees more room to run for stocks, favours broader global exposure
UBS is telling clients that despite the risk of bouts of volatility as Fed policy expectations shift with each data print, the broader global equity rally remains intact and the bank still sees upside for the S&P 500. The more notable call is the push toward diversification, with UBS arguing that concentration risk in US markets makes European and Asian equities a more effective way to participate in what it frames as a broadening rally rather than a narrow one. That view aligns with a strong Q2 European earnings season and robust Asian earnings growth forecasts, giving the diversification case a fundamental underpinning rather than a purely valuation driven one.
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UBS isn't backing away from stocks, it's just telling clients to stop putting all their chips on the US.
Summary:
- UBS expects the global stock rally to continue, with further gains likely for the S&P 500, though shifting Fed policy expectations could drive periods of volatility
- The bank favours diversified regional exposure given elevated concentration risk in US equities, seeing this as a way to participate in a broadening rally
- On Europe, UBS points to Stoxx Europe 600 companies tracking their strongest Q2 profit growth since 2022, a more durable investment cycle tied to defence, infrastructure, AI, automation, electrification and energy security spending, and Germany's fiscal impulse; the bank likes banks, health care, industrials, consumer discretionary, Germany and its European Leaders theme
- On Japan, UBS sees a likely cyclical bottom in place, citing over 20% year on year operating profit growth in Q2 and favouring AI related names including semiconductor equipment, alongside cyclical recovery plays like banks and machinery, and power demand beneficiaries
- On Asia ex-Japan, UBS holds an Attractive view backed by a 72% earnings growth forecast for the year, favouring China's internet sector and semiconductor capital equipment, plus banks, insurers, select utilities and consumer staples for defensive income, alongside India's growth story beyond AI and Singapore's value-up reforms
- UBS concludes that broad global earnings strength and structural growth trends support a diversified equity portfolio as the best way to navigate ongoing uncertainty
UBS told clients this week that the global equity rally still has room to run, even as shifting expectations around Federal Reserve policy are likely to generate periodic bouts of volatility as each new data print reshapes the rate outlook. The bank said it continues to see further gains ahead for the S&P 500, but its broader message centred on where investors should look beyond the US market that has led the rally so far.
UBS argued that elevated concentration risk within US equities makes the case for diversified regional exposure more compelling than usual, framing European and Asian markets not as defensive hedges but as genuine opportunities within what it described as a broadening global rally.
On Europe, the bank pointed to earnings momentum as the clearest signal, with Stoxx Europe 600 companies on track for their strongest second quarter profit growth since 2022. UBS said European equities still have room to climb further despite their recent run to record highs, underpinned by a more durable investment cycle as spending on defence, infrastructure, artificial intelligence, automation, electrification and energy security flows through to select industrial, technology, financial and consumer names. The bank acknowledged Europe remains more exposed than the US to disruption in energy markets, but said improving business activity, strengthening order trends and Germany's fiscal impulse should help widen the recovery. UBS named banks, health care, industrials, consumer discretionary, German equities and its European Leaders theme as preferred exposures.
On Japan, UBS said the market has likely found a cyclical bottom after regaining some lost ground over the past two weeks, supported by resilient corporate earnings. The bank cited operating profit growth running above 20% year on year in the second quarter, with positive earnings surprises reinforcing the outlook. It said the recent valuation reset has opened attractive entry points into high quality companies with durable earnings growth, and it favours balanced exposure to AI related names including semiconductor equipment, alongside cyclical recovery beneficiaries such as banks and machinery, plus companies positioned to benefit from rising power demand tied to electrification, digitalisation and AI infrastructure buildout.
UBS holds an Attractive rating on Asia ex-Japan, built around a forecast for 72% earnings growth this year, driven by the region's role in the AI hardware supply chain alongside a recovery in more cyclical segments. Within China, the bank said an improving risk-reward backdrop should support the internet sector, while continued AI investment commitments should benefit semiconductor capital equipment names. UBS also flagged growth opportunities in power and health care, and named banks, insurers, select utilities and consumer staples as preferred plays for defensive cash flow and income. Beyond AI, the bank pointed to India as a compelling standalone growth story, while continuing "value-up" reforms should support select markets such as Singapore.
Taken together, UBS said broad based global earnings strength, an improving cyclical backdrop and structural growth trends across regions make the case for a diversified equity portfolio, arguing that such positioning gives investors the best route to participate in a broadening rally while navigating the uncertainty and potential volatility still ahead.
This article was written by Eamonn Sheridan at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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