UBS Equities-Global Strategy _Long-Term Expected Returns For Global Equit...-119697023

ab12 January 2026Global ResearchGlobal StrategyLong-Term Expected Returns For Global EquitiesDetails on the methodology/model can be found in our Q-Series reportLeveraging our ERP frameworkEquity Risk Premium (ERP), the excess return that investors demand from stocks over the risk-free rate, has strong predictive power for equity performance. After studying 100+yrs of data, we found that its predictability heavily depends on the current stage of the business cycle, as well as the starting levels of rates and earning yields. Taking into account those macro regimes, we built a forecasting model where the "alpha" component (aims to) capture earnings growth potential, while the "beta" component focuses solely on valuation. On the latter, we adjust for balance sheet quality and sensitivity to real rates, to better fit sectors/industries or regional properties.What are today's key conclusions and asset implications? 1) Valuations have significantly worsened since our last update in May last year. Our measure of ERP has moved from 4.56% in average to 3.62%, a 94bps decrease2) S&P expected total return now stands at 6.3% pa, well below its historical average3) EU Value, alongside Spain/Italy/EU Financials/EU Energy, have strongly outperformed our model predictions. Some medium-term pay back may be warranted4) South Korea ERP has literally collapsed, dropping from 8.4% to 3.6%, a combination of lower cyclically adjusted earnings yields and higher real rates5) France screens favourably among the most attractive EU (and DM) markets today 6) Japan is attractive too. This will likely change if forward pricing of rates is realised7) Within EM, Taiwan & South Africa exhibit the highest expected returns, 10%+ pa for both, the former benefitting from low real rates (at 20%le), the latter from high earnings yields (at 77%le)8) Sectors: a) Cons. Discr. EU over US, b) Financials US over EU , and c) Tech US over EU 9) Styles: Growth over Low VolatilityWe include lists of high-conviction stocks with exposure to the relative value opportunities.Part I: Country Indices relative value opportunitiesPart II: Sectors relative value opportunitiesPart III: Styles relative value opportunitiesThis report has been prepared by UBS Europe SE. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 25. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Global StrategyGlobalNicolas Le RouxStrategistnicolas.le-roux@ubs.com+33-14-888 5000Bhanu BawejaStrategistbhanu.baweja@ubs.com+44-20-7568 6833Andrew GarthwaiteStrategistandrew.garthwaite@ubs.com+44-20-7567 4343Gerry FowlerStrategistgerry.fowler@ubs.com+44-20-7567 5490Michel Lerner, CFAHead