UBS has upgraded its earnings growth forecast for global equities from 12% to 20% for 2026, citing a robust earnings season and resilient economic fundamentals that have propelled markets to fresh all-time highs despite ongoing disruption from the US-Iran conflict.
The Swiss bank's chief investment office maintained its "attractive" rating on the MSCI All Country World Index and set a December 2026 target of 1,410, rising to 1,470 by June 2027, up from 1,310 currently.
Global equities declined in March following the onset of the Iran war but rebounded sharply in April and have continued to push higher through May, driven by strong corporate results and resilient consumer spending.
UBS said roughly half of the earnings upgrade stems from technology sectors, where compute shortages and severe bottlenecks in memory have supported margins, while strength in core businesses such as cloud computing and digital advertising has helped justify higher capital expenditure.
The bank now expects AI-related capital spending to grow by close to 70% this year, followed by a further 20% next year.
A quarter of the upgrade is attributed to the energy sector, which has benefited from rising oil and gas prices linked to disruption in the Strait of Hormuz, while the remaining quarter is spread across other sectors that are also demonstrating robust performance.
UBS acknowledged that the sharp rally may invite near-term consolidation as tailwinds from the earnings season fade, but said the underlying backdrop remains supportive.
The bank recommended well-diversified exposure across regions and sectors, with the US, Japan, emerging markets and Switzerland among its preferred markets.
Within AI, UBS is taking a more selective approach, looking beyond US large-cap technology names towards what it considers more attractive opportunities, particularly among Chinese technology companies.
Beyond AI, UBS recommended a combination of cyclical sectors such as consumer discretionary and structural growth areas including industrials and healthcare, with financials and utilities favoured in the US and real estate in Europe.
The bank flagged three key risks: the timing of the reopening of the Strait of Hormuz, the potential for rising inflation and bond yields to undermine valuations, and intensifying competition within technology sectors.
UBS also warned that the breadth of the post-conflict recovery has been narrow, particularly in technology-heavy markets such as the US and emerging markets, pushing concentration risk to record levels and reinforcing the case for multifactor strategies to achieve diversification.
In a downside scenario, UBS sees the MSCI ACWI falling to 935 by December if the Middle East conflict escalates further, energy disruptions persist for several months, or a sharp pickup in inflation forces markets to price in rate hikes.