UBS Warns UK Equities May Lag Eurozone in 2026

UBS Forecasts UK Market Underperformance

UBS projects that UK equities will underperform their Eurozone counterparts in 2026, despite a notable outperformance in the previous year. The forecast highlights concerns over the sustainability of recent market gains.

Analysis of Market Dynamics

In 2025, the FTSE 100 index recorded a significant 22% increase, surpassing both Eurozone and U.S. markets. However, according to a note from UBS market strategist Anthi Tsouvali, this strong performance was not broad-based and relied on a narrow set of drivers.

Key Factors Driving the Outlook

The primary reasons cited for the cautious 2026 outlook are stretched valuations and a high concentration of gains within a limited group of stocks. UBS analysis indicates that the 2025 rally was driven by four specific factors, suggesting a potentially fragile foundation for continued growth.

Summary and Outlook

While the UK market demonstrated strength in 2025, investors are advised to be cautious moving into 2026. The narrow base of the recent rally and elevated valuations present significant headwinds, potentially positioning Eurozone equities for relative outperformance.

FAQ

Q: Why does UBS expect UK equities to underperform in 2026?
A: The forecast is based on concerns over stretched valuations and the fact that recent gains were concentrated in a very limited number of stocks.

Q: How did the UK's FTSE 100 perform in 2025?
A: The FTSE 100 rose by 22%, outperforming markets in both the Eurozone and the United States.

Source: Investing.com