UBS has revised its stance on UK equities to neutral, saying the market offers limited upside compared with opportunities elsewhere despite what it views as reasonable valuation and prospects for earnings growth.
In its latest research note published Thursday by the UBS Chief Investment Office, the bank highlights that the FTSE 100 is trading at a forward price-to-earnings multiple of 13.5 times. UBS notes that this sits marginally above the FTSE 100's long-run median forward P/E of 12.8 times going back to 1990. The bank's forecasts call for UK earnings growth of 5% in 2026 and 15% in 2027.
Drivers cited by UBS
UBS equity strategist Matthew Gilman outlines three dominant themes that have shaped UK equity performance this year:
- an improving cyclical backdrop, with global manufacturing purchasing managers' indices (PMIs) reaching multi-year highs;
- concerns about AI-related disruption prompting rotation out of digital sectors and into more physical parts of the market;
- heightened tensions in the Middle East, which have raised questions regarding energy security.
Those factors feed into the bank's view that, while earnings and valuations offer some support, the overall upside available to UK equities is limited relative to global alternatives.
FTSE 100 price targets and scenarios
UBS has set a December 2026 target for the FTSE 100 of 10,500. That compares with a level of 10,320 as of Tuesday. The bank also publishes an intermediate target of 10,300 for June 2026.
UBS outlines both an upside and downside path for the index. In a more favourable macro backdrop - one with faster global growth, easier financial conditions and improving confidence - the bank sees potential for the FTSE 100 to reach 11,300 by December 2026. UBS also notes that higher commodity prices and a weaker sterling would be supportive, given that an estimated 75% to 80% of FTSE 100 revenues are generated outside the United Kingdom.
Conversely, UBS sets a downside target of 7,200 should economic weakness materialize. The bank links such an outcome to prolonged energy disruptions in the Middle East that could delay rate cuts in the United States and the United Kingdom. It also warns that renewed US-Europe trade tensions or a decline in commodity prices would weigh on the market, since commodity sectors account for roughly 20% to 25% of FTSE 100 earnings.
Sector positioning
Within its European sector preferences, UBS has downgraded European banks to neutral following their recent strong performance and early signs that earnings upgrades are slowing. The bank continues to favour European information technology, industrials and real estate sectors. UBS says these sectors benefit from structural trends such as memory demand, electrification, manufacturing reshoring and increased defence spending.
Overall, UBS's adjustment to neutral reflects a balance between modest valuation support and constraints on upside relative to global markets, while its range of targets captures the sensitivity of the FTSE 100 to global growth, commodity moves, currency shifts and geopolitical developments.