‘Bloomberg ETF IQ Europe’ Full Show (01/13/2021)
Barclays has supported European equities in their quest to hit new highs in 2021, with 13% upside potential for the Stoxx 600 and two listed issuers offering over 50% potential return.
In its forecast for 2021, bank analysts said the rally in the stock market will be driven mainly by rising earnings per share as the pandemic is being driven by highly effective vaccines. Covid-19 will be brought under control and a return to normal will trigger a strong rally in cyclical stocks.
Barclays economists expect global GDP growth of 5.4% next year, the sharpest since 2010, which they forecast will boost European corporate earnings by about 45% from the current low..
The largest bets on Barclays shares for 2021 are oil company BP with 63.7% upside, followed by Dutch bank ABN Amro with 50.6% upside and British telecom BT Group with 47.2%..
Lufthansa, for which financial conglomerate Barclays sees a potential loss of -46.1%, Dutch payments company Adyen (-34.1%) and British online supermarket Ocado (-30.5%) are expected to suffer the most this year..
«Central banks and governments have the tools to support the recovery, financial conditions are favorable and there is pent-up demand, given strong disposable income, high savings and recoverable profits.», – said Emmanuelle Cau (Emmanuel Cau), Chief Strategist Barclays on European Shares in the report.
Kau acknowledged that the short-term outlook remains uncertain as the vaccine rollout and the long-term impact of the pandemic on society are still a factor of uncertainty, while the recent market growth leaves no room for positive surprises.
However, Barclays does see an opportunity to continue its rotation from «relatively safe harbors», such as bonds, cash, developed markets, US growth and defensive stocks, into less risky assets such as emerging market and European stocks, cyclical and value stocks.
«Given the large output gap, we expect the expansionary monetary and fiscal policy to remain unchanged. China’s recovery is expanding, while US and European consumer spending and capital spending should rebound and services should catch up with manufacturing», – said Kau.
«Against this backdrop, bond yields are more likely to rise than decline, which, along with a weak dollar, should trigger reflation, giving preference to cost and cyclical».
Warning that the path to this normalization is likely to be bumpy, Barclays suggested that dips should be bought during a possibly harsh and volatile winter..
While sentiment has become more optimistic in recent weeks, Kau noted that «the reversal of a two-year flight to safety may be just beginning».
Regarding regional distribution, Barclays positions the increased potential of emerging markets versus developed markets, Europe against UK weighing in progress European and US markets.
At the industry level, Kau’s team sees overweight in the financial, industrial, commodity and consumer sectors (nonessential goods and services), as well as in the healthcare, essential goods, telecommunications and real estate sectors. Utilities, technologies and energy, in their opinion, have an average market weight.