Eurozone equities

20 August 2026, 21:00 UTC Chief Investment Office GWM Investment Research

Eurozone equities CIO View: Eurozone equities Matthew Gilman, Head, CIO Europe Equity Strategy, UBS Switzerland AG Rolf Ganter, CFA, CIO Head of Europe Equities, UBS Switzerland AG

• Europe’s second-quarter results reinforce our view that a Global Asset Class Preference Attractive strong and increasingly broad earnings cycle is under way. We lift our earnings growth forecast for the Eurozone for this year to Euro Stoxx 50 15% and continue to see around 15% growth in 2027 as well. This Stoxx 50 supports further upside for European equities, in our view, reflected 12 Aug 26 6,540 in our raised index targets. 6,900 Dec 26 • European IT upgraded to Attractive after its recent correction. P/E Jun 27 7,100 valuations are no longer stretched and renewed strength in earnings Source: Refinitiv, UBS momentum adds fundamental support with AI capex expectations continuing to rise.

• We favor a combination of cyclical and structural growth opportunities in the region. This supports our preference for European banks, consumer discretionary, health care, industrial, IT, and Germany.

Central scenario CIO themes Europe’s second-quarter results reinforce our view that a strong and European Leaders increasingly broad earnings cycle is under way. With most companies Europe's leading companies that we believe having reported, earnings are growing by around 22% year over year, or are positioned to benefit from global trends roughly 11% excluding energy, following 12% growth in the first quarter. and the region’s structural shifts. Cost discipline remains an important support for margins, but the next leg should increasingly come from revenues as manufacturing improves, Luxury & Lifestyles currency headwinds fade, and operating leverage strengthens. We see multi-trillion-dollar opportunities emerging across "Luxury & Lifestyles" The breadth of the improvement is particularly encouraging. The recovery segments, underpinned by global population is no longer reliant on commodity base effects and secular growers, but all growth, rapid urbanization, robust sectors should grow profits this year. Financials are reaccelerating as loan wealth creation, demographic shifts, and demand and capital markets activity improve. Industrials are benefiting accelerating digitalization. from structural investment in AI, electrification, and defense, alongside better cyclical trends in areas like automation. Information technology is at the start of an earnings upcycle as AI-related semiconductor capital Preferences spending expectations rise. Meanwhile, sectors that held back profits last year, including commodities, chemicals, and consumer discretionary and Banks staples, are returning to growth. Consumer Discretionary Health Care This broadening is also visible in earnings revisions. Global manufacturing Industrials PMIs have recovered into the low- to mid-50s, levels that have typically Information Technology marked the end of downgrade cycles, while the breadth of analysts’ Germany revisions has strengthened to its highest level in three years. Cost discipline, an improving sales volume outlook, and fading currency headwinds should sustain growth into 2027. But this remains an investment-led

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recovery. Consumption therefore is more mixed. High-end demand is relatively resilient with AI wealth effects starting to feed through now as well, supporting our preference for the “Luxury & Lifestyles” theme. But conditions remain tougher for lower-income consumers and sluggish Chinese demand continues to weigh on European stocks, especially for autos.

Following the strength of earnings in the first half, we raise our 2026 earnings growth forecast to around 15% for Eurozone equities (previously, we forecast 8% for the EuroStoxx 50 and 11% for broader Eurozone indices). We retain our 15% forecast for 2027, implying approximately 32% cumulative earnings growth over 2026 and 2027, versus 25% previously. This supports further upside for European equities, in our view, reflected in our…