Don't miss this 'gem' in Europe's stock market, says Barclays …
LONDON (MarketWatch) — Were you too skeptical to follow the Europe bulls and pile into the region’s stock markets early in the year? But worried now it is too late to make stellar returns out of the once unloved region?
The good news is that you can still comfortably take a seat on the European equity train, and let the European Central Bank’s easing program and local reforms do all the hard work, Barclays analysts said on Thursday.
“We’re still overweight Europe,” said Jim McCormick, head of asset allocation at Barclays, at an event for the publication of the bank’s Global Outlook report in London.
“The relative gem — that’s still out there as a result of what’s been a fairly successful ECB QE — is peripheral equity. It looks quite cheap relative to lots of things, including Germany.”
In other words, Barclays says investors should turn their gaze further south, pointing to Italy, Spain and Portugal — known as the periphery — as the best plays.
McCormick from Barclays explained that this is partly because valuations are more attractive for stocks in those countries, but also that their economies are starting to pick up.
“When value meets macro-catalysts, that’s when it becomes an interesting story,” he said. “You now have significantly eased financial conditions [due to QE] and if you look for example at Italian numbers they have started to improve. Relative business confidence in Italy versus Germany is the best it’s been in several years.”
Barclays isn’t the only one touting the merits of so-called peripherals.
Last week, Société Générale also advised going Italian, as well as saying it is time to take profit on the German DAX DAX, -0.18% after the strong rally. The DAX is up 19% year-to-date, while Italy’s FTSE MIB FTSEMIB, -1.06% has jumped 20%. Spain’s IBEX 35 index IBEX, -0.10% is up 10% and Portugal’s PSI 20 index PSI20, -1.10% has mustered a whopping 24% rally.
The pan-European Stoxx Europe 600 index SXXP, -0.86% is up 14%, outpacing gains for any of the U.S. benchmarks.
“We’re still underweight the U.S.,” said McCormick. “But without the Fed [rate hike] as an imminent threat and the dollar stabilizing, it shouldn’t be a bad environment for U.S. equities.
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Don't miss this 'gem' in Europe's stock market, says Barclays …
