UBS Switzerland has adjusted its year-end 2026 objective for the FTSE 100 index upward to 11,000, up from its prior target of 10,500, citing a stronger earnings backdrop for UK companies. The revision reflects a materially higher earnings growth estimate for UK equities this year and continues to rely on energy sector strength and the outsized influence of a handful of stocks.
The bank has lifted its earnings growth forecast for UK equities to 11% from 5% for the current year, noting that the increase is primarily attributable to elevated earnings in the energy sector. UBS also projects that robust earnings growth - roughly 10% - will extend into 2027, supported by an improving economic backdrop that the bank expects will temper the impact of an anticipated decline in oil prices.
UBS highlights a valuation argument in support of UK equities. According to the bank, the FTSE 100 trades at a forward price-to-earnings multiple of 13.2 times, compared with a historical median of 12.8 times since 1990. The firm also points to concentrated stock-level drivers of recent returns: just 10 companies have accounted for more than three-quarters of the FTSE 100's return over the past 12 months.
While UBS upgraded its index target and noted stronger earnings, the bank also indicates that the upside potential for UK equities is more limited relative to global markets. That view is based on the United Kingdom's relatively low exposure to several secular growth themes that UBS identifies as important - including artificial intelligence, power and resources, longevity, and European defense spending - which it says constrains the domestic market's participation in those longer-term trends.
Regionally, UBS has articulated specific sector preferences. In March, the bank upgraded European consumer discretionary and health care to an "attractive" rating. It continues to rate industrials, information technology and real estate as attractive sectors within the region. UBS also cites favored thematic exposures in Europe such as market-leading European companies and the luxury and lifestyles space.
Overall, UBS's revised FTSE 100 target and higher earnings assumptions reflect a view that energy sector dynamics and concentrated single-stock performance will underpin near-term UK equity returns, even as broader exposure to secular growth themes remains a limiting factor when comparing UK upside to global opportunities.