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Investing.com -- UBS has maintained a neutral stance on Eurozone equities, citing ongoing macroeconomic uncertainty, while projecting an eventual recovery in corporate earnings beginning in 2026.
UBS’s most recent research has revised its Eurozone earnings growth forecast for 2025 downward. The new projection is for a 3% contraction, a drop from its previous estimate of 0% growth.
This revision is a result of a weaker second-quarter earnings season and unfavorable currency movements.
The brokerage noted that the current earnings season has been relatively muted, with fewer companies beating estimates compared with previous years.
Despite the downgrade, UBS expects earnings to expand by 5% in 2026, with further acceleration anticipated in 2027, potentially exceeding current consensus expectations.
European equities have lagged behind other major markets, with the Stoxx 600 delivering only a 5% price return since mid-2024, underperforming the United States and Asia ex-Japan by more than 15% during the same period.
UBS said the weak earnings backdrop has contributed to this stagnation, though it also highlighted that several headwinds are now easing.
The recently concluded U.S.-EU and U.S.-Japan trade agreements were cited as supportive developments, expected to help restore business investment confidence.
While UBS does not see significant near-term gains, it forecasts modest upside over the next 12 months, targeting the Euro Stoxx 50 at 5,500 points by the end of 2025 and 5,600 by mid-2026.
The brokerage also pointed to the region’s prospective dividend yield of 3.3% as an additional source of support for investors.
Looking beyond cyclical recovery, UBS identified structural drivers that could bolster Eurozone equities from 2026 onward.
These include Germany’s infrastructure stimulus, increased EU defense spending, and reforms aimed at improving access to funding and fostering innovation.
Despite the medium-term optimism, UBS continues to advise selective exposure in the near term, focusing on high-quality European stocks and opportunities in industrials, information technology, and real estate.