UBS: UK Equities Fairly Valued with Limited Upside

UBS Projects Moderate FTSE 100 Growth

UBS reports that UK equities are reasonably valued but offer less upside potential compared to global markets. The FTSE 100 is trading at a forward price-to-earnings ratio of 12.7x, near its historical median. The firm has set a June 2026 target of 10,300 for the index.

Market Drivers and Influences

The UK market's performance this year has been influenced by an improving cyclical outlook, a rotation from digital to physical assets, and geopolitical tensions. The UK's less cyclical nature and its large oil and gas sector have provided relative stability amidst these global factors.

Earnings Outlook and Sector Preferences

Reflecting higher oil prices, UBS upgraded its 2024 earnings growth forecast for UK equities to 9-10% from 5%. The firm sees greater potential in other regions, upgrading European healthcare to attractive and maintaining a preference for European IT and industrials due to their secular growth drivers.

Outlook Summary

In its base case, UBS anticipates greater upside in cyclical markets if energy disruptions are short-lived. Since 75-80% of FTSE 100 revenues come from abroad, a potential reversal of recent GBP strength could further support local currency returns for investors.

FAQ

Q: What is UBS's target for the FTSE 100?
A: UBS has set a June 2026 target of 10,300 and a December 2026 target of 10,500.

Q: Why was the 2024 earnings forecast for UK equities raised?
A: The forecast was upgraded from 5% to 9-10% primarily due to the impact of higher oil prices on the energy-heavy index.

Source: Investing.com