UBS sees modest upside in STOXX Europe 600

UBS has set its 2025 price target for the STOXX Europe 600 at 550, implying little change from current levels, and a 2026 target of 590, which would represent a 7% gain.

“European stocks are highly divergent with exporters sensitive to tariffs and the Euro offsetting strong gains in more domestic and service-oriented businesses,” analysts at UBS said in a note.

The near-term economic backdrop remains supportive, though UBS expects a GDP slowdown largely driven by weaker net exports.

New orders PMIs have slipped below 50, especially in healthcare and chemicals, while sectors such as banks, industrials, media, telecoms, utilities and food retail are better positioned in the current regime.

UBS’ earnings expectations for 2025 remain subdued, with sales growth seen at 2% and earnings growth at 1%, after downgrades in tariff- and currency-sensitive industries such as autos, household and personal products, food, beverage and tobacco, and luxury goods.

The analysts see “up to 5% more index level downgrades to come” and suggest low positioning and cheaper valuations could become attractive only when negative revisions slow.

On valuations, the STOXX 600 forward price-to-earnings (P/E) is close to 15x, which analysts consider “reasonable into year-end as we price the growth acceleration in the coming years,” they wrote.

Tight credit spreads provide support, and the bank expects equities to rally to maintain these valuations as the anticipated late-2026 growth recovery enters the 12-month consensus earnings window.

Flows into European equities are being led by active management, reflecting what UBS calls “policy-driven alpha” from stimulus versus tariff and FX impacts.

The bank continues to favour utilities, renewables, telecoms, industrials linked to electrification, financials, SMID caps and food retail.

Least favoured areas include household and personal products, food, beverage and tobacco, chemicals, China-exposed sectors, software and semiconductors.

As for the individual stocks, UBS’ favoured names include Engie, E.On, RWE, Poste Italiane, Thales, Flughafen Zurich, EDP, SPIE, Beazley, Sainsbury and Telia.

Among the least preferred are ASML (ASML), Beiersdorf, Puma, Dassault Systèmes, Givaudan, Nestlé and Swatch.

UBS lowered its view on construction materials and copper miners to neutral and raised its stance on pharma and energy to neutral.