Australian shares are poised for a stronger performance in 2026, according to investment bank UBS, which predicts a resurgence in the mining sector and more stable profit margins. UBS expects these factors will help the market break out of its recent stagnation. Equity strategist Richard Schellbach forecasts the S&P/ASX 200 Index to reach 8900 by the end of 2026. This target is nearly 6 per cent above current levels, though 2 per cent below the record high of 9094 points achieved in late October.
UBS anticipates that the resources sector will be a primary driver of earnings growth, but expects the earnings rebound to extend to other market areas. The outlook for consumer-facing companies is considered “comforting” due to robust household spending. Additionally, the healthcare sector, which has underperformed in recent years, is “heralding a return to growth” towards the end of next year. Margin pressure, a persistent challenge for Australian company profits since the COVID-19 pandemic, appears to be easing. UBS is a global financial services company providing investment banking, wealth management, and asset management services.
The bank’s analysis indicates that pricing power is stabilising and potentially expanding through next year, which reduces the likelihood of another earnings downgrade cycle. While earnings growth would be at risk if profit margins were to decline through 2026, the bank believes this is unlikely. UBS also noted that equities have undergone a modest derating in recent months, bringing valuations back to what they consider a ‘reasonable’ level relative to the past decade.
UBS remains optimistic about the global artificial intelligence theme, anticipating the trend to continue for another two years, supporting elevated company valuations tied to it. As for Australia’s macroeconomic environment, the bank projects economic growth to strengthen in 2026, outperforming other advanced economies. This outlook is based on resilient household spending, lower interest rates, and improving consumer sentiment. UBS expects the Reserve Bank of Australia to conclude its rate-lowering cycle, while the US Federal Reserve is expected to continue cutting rates. This divergence should lead to an increase in the Australian dollar.
