Europe’s corporate earnings cycle is emerging from three years of stagnation, with profit and revenue growth accelerating to their fastest pace since 2022 in the second quarter, according to UBS. The Swiss bank’s strategists, led by Dean Turner, now expect 2026 earnings growth of 15% for European equities, extending into 2027, as loan demand and capital markets activity strengthen.
UBS outlined four investment opportunities aligned with the shift. First are capital-spending enablers—European industrials and IT firms with high exposure to AI infrastructure, electrification and automation. Second, the bank favors European banks, which stand to benefit from rising corporate loan demand amid a surplus of customer deposits relative to loans; Eurozone corporate loan growth accelerated to 4.4% year-over-year in July 2026.
The third theme targets European quality leaders exposed to structural trends including Industry 4.0, automation, defense and infrastructure investment, decarbonization, and demographic shifts. Fourth, UBS recommends Swiss mid-caps as a preferred route to Switzerland’s recovery, citing a mix of structural growth, cyclical upside and reasonable valuations ahead of the SMIM index rebalancing on September 18. The large-cap SMI index is expected to become more defensive as the mid-cap gauge tilts toward cyclical stocks.
Macro tailwinds are also building. The average Eurozone loan-to-deposit ratio fell to 93% in the first quarter of 2026 from over 140% around the global financial crisis, indicating improved banking sector liquidity. NATO members agreed in June 2025 to raise defense and security spending to 5% of GDP by 2035, with European NATO members and Canada increasing outlays by 19% in 2025 and projected to rise another 11% in 2026 to $634 billion.
Profit growth excluding energy reached 11% year-over-year in the second quarter, while revenues excluding energy rose 8% year-over-year. Around 55% of the MSCI Europe IT sector’s market capitalization is concentrated in companies supplying semiconductor equipment, power systems, cooling and data-center components, underscoring the breadth of capital expenditure supporting the recovery.
