UBS Expects European Stocks to Rise, Sees Opportunities in Japan

UBS’s Chief Investment Office has struck an upbeat tone on global equities, arguing that investors should look beyond the US to capture a “broadening” stock market rally, with Europe and Japan singled out as regions offering compelling opportunities.

In its latest CIO Daily Update, the Swiss bank noted that global stocks hit fresh highs this week after softer US inflation data eased worries over an imminent Federal Reserve rate hike. Both the S&P 500 and the Stoxx Europe 600 closed near record levels, while Asian markets rallied in response.

While UBS still sees further upside for the S&P 500, it emphasized that diversification across regions offers investors an effective way to manage elevated concentration risk in US markets.

On Europe, UBS pointed to earnings momentum, with Stoxx 600 companies on track for their strongest second-quarter profit growth since 2022.

The bank cited a “durable investment cycle” driven by defense, infrastructure, AI, automation, electrification, and energy security spending. UBS favors banks, health care, industrials, consumer discretionary stocks, and Germany specifically, alongside its “European Leaders” theme.

Japan was also flagged as attractive, with UBS noting resilient corporate earnings—operating profit growth above 20% year-over-year—and a likely cyclical bottom following a recent valuation reset. The bank favors AI-related names including semiconductor equipment makers, alongside cyclical recovery plays like banks and machinery, and firms tied to rising power demand.

UBS maintained an “Attractive” rating on Asia ex-Japan too, forecasting 72% earnings growth this year, underpinned by AI hardware supply chains and cyclical recovery across China, India, and Singapore.