UBS expects the upcoming third-quarter earnings season to show further improvement in European corporate profits, while maintaining a positive view on eurozone equities despite higher interest rates and energy prices.
Matthew Gilman, head of European equity strategy at UBS Global Wealth Management’s Chief Investment Office, said revenue is becoming a more significant contributor to profit growth alongside “an already well-established cost discipline.” He added that currency effects are shifting from a headwind to a source of support.
UBS expects eurozone earnings to grow 15% in both 2026 and 2027.
Gilman cited global manufacturing purchasing managers’ indices for September and Germany’s Ifo survey as indicators of underlying demand. The bank expects structural investment trends to continue despite broader economic pressures.
UBS Sees Continued Investment in AI, Electrification and Defence
Gilman said investment in artificial intelligence “still appears to be constrained more by supply than by funding.”
UBS expects further indications during the earnings season that the economic benefits associated with AI investment are extending across a broader range of companies, following similar developments in the previous quarter.
The bank also expects higher energy prices to support investment in electrification and defence, areas that Gilman considers relatively resilient to broader macroeconomic pressures.
UBS is monitoring whether higher input costs and interest rates begin to affect demand or corporate margins. Gilman sees greater exposure to these pressures among consumer-focused companies, where demand remains subdued and companies have less ability to increase prices.
However, UBS expects cost controls and investment-related demand to offset some of these pressures across much of the corporate sector.
UBS Maintains Attractive Rating on Eurozone Equities
UBS maintained its “Attractive” rating on the eurozone and identified information technology, industrials, banks and healthcare among its preferred sectors. The bank also favours German equities within the region.
UBS additionally continues to recommend its “European Leaders” and “Swiss Small and Mid-Cap Prospects” investment themes.
Gilman said discretionary consumer spending has faced pressure from higher interest rates and oil prices but expects conditions to improve if the outlook for energy flows becomes more favourable.
Within consumer-related investments, he favours a selective approach focused on higher-end spending through UBS’s “Luxury & Lifestyle” theme, which the bank expects to be more resilient than other discretionary segments.
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