UBP House View

The opinions expressed in this document are as at 8 October 2026 and are subject to change without notice.

Resilience on a narrowing path Editorial A month ago, we wrote that the outlook for equity markets remained reassuring, supported by resilient earnings, and that only a tightening of financial conditions would signal a genuine change in regime. That scenario is now beginning to materialise: long-term yields continue to rise, with US 10-year Treasuries now trading at levels not seen since 2007. For the time being, equity markets are proving remarkably resilient. Artificial intelligence (AI) continues to act as a powerful growth driver, with substantial investment in infrastructure supporting earnings growth and, in turn, the major indices. This resilience is, however, more fragile than it may appear. Some sectors are already feeling the effects of persistently high interest rates, while the overall strength of the markets increasingly depends on a narrowing set of drivers, with technology at the forefront. The conflict in the Middle East remains a cyclical event with a significant impact on markets, the outcome of which lies beyond investors’ control. It leaves us facing a binary environment: depending on whether tensions ease on a sustained basis or intensify, the paths of oil prices, inflation and interest rates could diverge dramatically. The primary risk to markets comes through interest rates: persistently high energy prices sustain inflationary pressures and push long-term yields higher, weighing on equity valuations. Against this backdrop, the usual central-bank playbook becomes less straightforward. Policymakers must contend with a supply shock that monetary policy cannot resolve and whose eventual outcome is more likely to be determined by political decisions than by economic forces. In Europe, this uncertainty is compounded by growing political and fiscal fragility: widening sovereign spreads in both France and Italy, together with broader political risks, are already weighing on the continent’s outlook. Consequently, we are downgrading our rating on European equities, which, in addition to the challenges mentioned above, are benefiting less from the structural support provided by the technology sector. We remain invested in the markets in order to continue benefiting from the upward momentum in corporate earnings driven by AI, while also favouring strategies capable of navigating contrasting market environments without taking pronounced directional bets. Fundamentals remain supportive, but we stand ready to adjust our convictions should the underlying catalysts change. Michaël Lok, Group CIO and Co-CEO Asset Management

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