UBS forecasts ASX at 8,900 in 2026 and flags the biggest EPS winners

Economic conditions have shifted meaningfully, with domestic indicators revealing a more constructive environment than headline sentiment implies, suggesting that the earnings downgrade cycle of the past two years may be nearing an end.

UBS believes that is the moment Australian equities are approaching now, setting a year-end 2026 ASX 200 target of 8,900 points, which “would represent a 6% price return from current levels,” driven predominantly by an earnings recovery rather than a re-rating.  

Central to UBS’s thesis is a gradual but broad-based uplift in corporate performance. 

“The improved top-line story we are seeing from the local economy should allow many of the domestic earning stocks to see gradual (albeit modest) earnings upgrades over the coming year,” strategists Richard Schellbach and Lily Huang wrote.

UBS also sees a supportive macro backdrop, with Australia forecast to grow “2.2% next year, a pace which our economist sees as above ‘trend’.” 

This shift is set to break a multi-year pattern in which optimism at the start of the financial year was repeatedly revised downward as conditions deteriorated.

Notably, UBS’s view is not confined to a single sector. 

“The improved earnings from the consumer spaces are comforting, with even the much-maligned Healthcare sector heralding a return to growth towards the end of CY26,” they said.

UBS also highlights that valuation support remains intact, in part because its house view is that the global AI thematic “could have another two years to run,” helping keep premium multiples justified for longer.

Meanwhile, Australia may prove more resilient than markets heavily concentrated in tech: with only “6% of the Australian equity market’s cap” exposed to tech, compared to 40% at the dot-com peak, UBS argues that the ASX “may well prove more defensive” should a U.S. unwind occur. 

Together, these developments reflect a transition toward a market led by fundamentals, supported by a broadening recovery across cyclical and defensive sectors rather than narrow leadership.

Mining: the heavy lifter returns

The Australian earnings cycle will be led, once again, by mining. UBS argues that improving top-line conditions “should allow many of the domestic earning stocks to see gradual (albeit modest) earnings upgrades over the coming year,” when combined with “the recent upgrade cycle we have observed from the Miners over recent months.”

Miners are coming off a period of weak performance, but UBS believes the worst is behind them. 

The research highlights that “there is scope for earnings to grow by slightly more than 10% through 2026,” underpinned by a stabilising domestic backdrop and sector-specific operating leverage.

This is not a boom thesis. It is an operational recovery in a sector still priced conservatively relative to history, yet central to the ASX’s return-to-earnings momentum.

Consumer sectors: better than sentiment implies

UBS highlights a notable improvement across consumer-linked industries, arguing that “the improved earnings from the Consumer spaces are comforting,” particularly given persistent concerns about discretionary spending and real income pressures.

The bank points to a combination of domestic growth, household spending, and price stability as early drivers of support. 

Economic momentum has surprised positively, with UBS highlighting “the strongest set of results on record” from its quarterly consumer survey and a “Household spending indicator… currently growing at 5.1% y/y, slightly above its average since 2013 of 4.8%.”

This is not a consensus view in markets. Sentiment remains cautious. Positioning remains defensive. But earnings direction is shifting and shifting early.

Healthcare: returning to growth after a lost period

UBS is notably constructive on healthcare, despite recent underperformance. 

The bank sees recovering demand, cost stabilisation and capital discipline as meaningful tailwinds for a sector that has endured several years of margin pressure, valuation compression and weak volumes.

For long-term investors, the sector may offer early-cycle exposure with compressed expectations and, in some cases, mispriced optionality.

Industrials: leverage to a stronger domestic economy

Industrials stand out as a structural beneficiary of a stronger domestic outlook. UBS forecasts “the prospect of possible double-digit earnings growth ahead of us,” driven not just by mining, but by cyclical sectors with operating leverage.

Australia is expected to be one of the fastest-growing advanced economies next year, with UBS projecting that “Australia's economy should grow by 2.2% next year, a pace which our economist sees as above 'trend'.”

This macro backdrop provides a tailwind for companies exposed to infrastructure, logistics and industrial activity, sectors often overlooked in earnings recovery narratives.

Pricing power and margins: the quiet driver

The strength of the outlook is supported by underlying margin dynamics. 

UBS highlights that “the pricing power environment for Aussie corporates has stabilised, and could even see margin uplift over the coming year.”

This marks an important shift from the pattern of 2023–2025, when inflation squeezed margins, even in sectors with demand resilience.

Margin stabilisation is the difference between flat earnings and double-digit growth, particularly in industries with operating leverage.

Valuation backdrop: not cheap, but reasonable

Despite recent volatility, valuations have cooled from their highs. 

UBS notes that “following the recent de-rate, the median non-resource Aussie stock trades at a fwd PE of 18.7x,” which still “looks expensive against its long-run 16.4x average, but not far removed from its post GFC average of 17.5x.”

Importantly, UBS stresses that compositional change matters:

“We would argue that after taking account of the composition and quality improvements within the Australian equity market over these years, the current valuation now looks 'reasonable'.”

The upside scenario is therefore fundamentals-led, not valuation-driven, a rare setup in modern markets.

The quiet reset

UBS describes 2026 as the strongest year for earnings growth in four years, driven by a broadening improvement across sectors. 

The bank expects “double-digit earnings growth,” supported by a stabilising economy, better pricing power and a rebound in corporate profitability.

It is not a bull market call. It is a transition:

• From sentiment to earnings.
• From liquidity to fundamentals.
• From defence to selective risk-taking.

Earnings trajectories are not uniform, and UBS notes that sector leadership and performance dispersion may remain elevated as the cycle normalises.

Positioning remains cautious, but UBS argues that earnings momentum is improving and that the market may soon reflect a more constructive underlying backdrop.