Global Equity Strategy Changes on Middle East settlement

Research evidence excerpt

Global Equity Strategy Changes on Middle East settlement

tral, and 4 and 13 week MA of earnings

revisions has moved up. Over the first Gulf War, the market just traded off the oil price.

At the time of writing, the 1-year forward oil price is c$75/bbl; and we think markets in

the medium term will likely start to discount an oil market oversupplied by late 2027

once the inventory rebuild is complete.

From a regional perspective, we stay underweight Europe, as even in a settlement

scenario, UBS still forecasts a gas price of TTF €50/MWh from TFF €34/MWh (pre-

conflict) in Q4-26 (ie up 50%) and see oil in Q4-26 being 25% higher than the pre-

conflict scenario owing to restock. Gas is particularly important in Europe as gas sets the

price of electricity 60% of the time and gas and electricity are 5% of CPI. Moreover, UBS

still forecasts another 25bps on ECB rates (i.e. 50bps in aggregate - each 50bp on rates

takes 0.5% off GDP a year later). Europe remains at the bottom of our scorecards (with

and without valuation). Consensus expectations of 7% revenue growth and 14% EPS

growth look more vulnerable than any other region. The sector-adjusted P/E is only in

line with its three-year average at a 22% discount, with the Market Implied Yield on UBS

HOLT close to normal levels vs the US, as we show inside. Europe is also bereft of AI

enablers, which have been responsible for the majority of global equity performance

YTD.

Regionally, big net energy importers have, in general, been the worst performers since

26/2 (with the exception of Brazil, due to political issues).

Consumer: We think overall, in a settlement scenario, some parts of those consumer

areas that have been abnormally de-rated, and are abnormally cheap, should