UBS: Expects global stock markets to consolidate in the short term, with the probability of a medium-term bubble increasing.

Recently, Zhang Ning, senior China economist at UBS Investment Bank, pointed out that there is a clear deviation between the current economic fundamentals and stock market performance. However, market pricing has hardly reflected concerns about tariffs, possibly because it is difficult to judge the final tariff range. Retail investors are buying on dips, AI concepts still have attractiveness, a weak US dollar and Federal Reserve interest rate cuts can partially offset profit declines. UBS global stock strategy team believes that global stock markets will experience consolidation in the short term, but still have further upside potential in the medium term, with the probability of a bubble increasing. In the US stock market, current resilience continues from previous years, with UBS US stock strategy team attributing this to strong structural buying pressure from share buybacks by listed companies and individual retirement accounts, suppressing selling pressure from short-term price-sensitive investors. Although US corporate profit growth may slow down, it will still achieve positive growth. AI-driven profit growth and a weak US dollar will be the main driving forces. Funds are flowing back into European stock markets, with UBS European stock strategy team setting the target price for the Euro Stoxx 600 index at 550 points by the end of 2025 and 590 points by the end of 2026. From a positive perspective, market confidence and enthusiasm for cyclical stocks rebounding may continue until 2026. However, the impact of tariffs and a strong euro will gradually manifest in the second and third quarter earnings reports of European companies. The team recommends investors to avoid sectors affected negatively by tariffs and a strong euro. Regarding emerging markets, UBS Emerging Markets stock strategy team believes that as new tariff rates are announced after negotiations, the downside risk for emerging market stocks may begin to emerge, as over 35% of overall revenue in emerging markets comes from overseas. Currently, emerging markets do not seem to have priced in this risk.