Investing.com -- UBS has confirmed its preference for European and U.K. stocks over U.S. equities, citing a combination of more favorable valuations, policy flexibility, and relative macro stability.
The bank continues to rate the U.S. at benchmark, but warns the region is more likely to underperform than outperform.
“The U.S. scores bottom of our composite scorecard,” UBS strategists led by Andrew Garthwaite said in a note.
UBS favors the European market over the U.S. on several grounds, including a narrowing growth gap with the U.S. and significantly cheaper valuations.
“Valuations [in the U.S.] remain extreme. The fiscal position is more challenging than for the Eurozone or Japan. Buyback yields are no longer exceptional,” they added.
Moreover, the expected GDP growth in Europe from the fourth quarter of 2025 to fourth quarter of 2026 “is on a par with the U.S. According to UBS, this has happened just 9% of the time over the past three decades.
They note that when this occurs, European stocks typically trade at a 10% discount on a sector-adjusted price-to-earnings (P/E) basis versus the U.S.
The Eurozone also benefits from “monetary policy flexibility and more fiscal flexibility than the US,” the strategists added.
The U.K., particularly the FTSE, is also highlighted as a defensive play with attractive valuations. UBS emphasized that the index is “cheap” and offers a total yield “2X the US, an extreme.”
U.K. equities rank highest on the bank’s tariff resilience scorecard, strategists said, and should benefit from expected rate cuts and sterling appreciation.
The U.S., meanwhile, continues to face numerous headwinds, including elevated valuations, sticky bond yields, and a more reactive Federal Reserve.
UBS also points out that traditional supports for U.S. equities, such as growth stock leadership and labor market flexibility, may offer less advantage in the current environment.
The bank maintains an underweight stance on Japan and tactically upgrades Emerging Markets (EM) to benchmark.
“EM moved up to second on our regional scorecard. Valuations are relatively appealing, the P/E relative to global equities is 6% below its norm,” strategists said.