UBS: Expects short-term consolidation in global stock markets, with rising probability of mid-term bubbles
The UBS Global Equity Strategy Team expects that global stock markets will experience consolidation in the short term, but there is still upward potential in the medium term, with an increasing probability of bubbles. Zhang Ning pointed out that the economic fundamentals are diverging from stock market performance, and the market has not fully reflected tariff concerns. The U.S. stock market is supported by company buybacks and pension fund purchases, with expected positive earnings growth. The target prices for European stock markets are set at 550 points and 590 points, and investors are advised to avoid sectors affected by tariffs and a strong euro. Emerging markets face downside risks that have not yet been factored into stock prices
According to the Zhitong Finance APP, recently, Zhang Ning, a senior Chinese economist at UBS Investment Bank, pointed out that there is a significant divergence between the current economic fundamentals and stock market performance. However, market pricing has hardly reflected concerns about tariffs, possibly due to the difficulty in determining the final tariff range. Retail investors are buying on dips, the AI concept remains attractive, and a weak dollar along with potential interest rate cuts by the Federal Reserve could offset earnings declines to some extent. The UBS Global Equity Strategy team believes that global stock markets will experience consolidation in the short term, but there is still further upside potential in the medium term, with an increasing probability of a bubble.
In terms of U.S. stocks, the current U.S. stock market continues the resilience seen in previous years. The UBS U.S. Equity Strategy team believes that this is supported by strong structural buying from share buybacks and individual pension funds, which suppresses the selling power of short-term price-sensitive investors. Although the growth rate of U.S. corporate earnings may slow, it will still achieve positive growth. AI-driven earnings growth and a weak dollar will be the main driving forces.
Funds are flowing back into European stock markets, and the UBS European Equity Strategy team has set target prices for the STOXX Europe 600 Index at 550 points by the end of 2025 and 590 points by the end of 2026.
From a positive perspective, market confidence and enthusiasm for a rebound in cyclical stocks may persist until 2026. However, the impact of tariff shocks and a strong euro will gradually be reflected in the second and third quarter financial reports of European companies. The team advises investors to avoid sectors negatively affected by tariff shocks and a strong euro.
Regarding emerging markets, the UBS Emerging Markets Equity Strategy team believes that as new reciprocal tariff rates are announced after negotiations, the downside risks for emerging market stocks may begin to emerge, as over 35% of overall income in emerging markets comes from overseas. Currently, it seems that emerging markets have not yet factored this risk into stock prices
