UBS has lowered its rating on European information technology stocks, advising clients to rotate into more defensive sectors as growth concerns mount. The Swiss bank now holds a 'neutral' stance on the sector, down from 'overweight', citing a weaker demand outlook for enterprise software and hardware.
The downgrade comes amid a broader sell-off in global tech shares, with the FTSE 100's technology sub-index falling 1.8% in early trading on Tuesday. UBS analysts pointed to slowing corporate IT budgets and elevated price-to-earnings ratios as key risks. 'The margin for error in the IT sector is now very thin,' the bank noted in a research note.
In contrast, UBS upgraded European utilities and healthcare to 'overweight', highlighting their defensive characteristics and attractive dividend yields. The Stoxx Europe 600 Utilities Index has gained 4.2% over the past month, outperforming the wider market. Analysts said these sectors offer stability in an environment of uncertain interest rate policy and geopolitical tension.
For UK investors, the shift has immediate implications. Many pension funds hold significant exposure to European equities via tracker funds. A move away from IT could reduce portfolio volatility, but also cap upside if tech stocks rebound. 'We are not calling for a collapse, but the risk-reward no longer favours chasing growth for growth's sake,' the UBS note added.
The FTSE 100 was trading 0.3% lower at 8,241 points by midday, with technology and consumer discretionary stocks leading declines. The pound held steady against the dollar at $1.27, as markets awaited the next Bank of England rate decision.
Source: UBS Global Research note published 15 April 2025.