Barclays Upgrades European Value Stocks

Investing.com — On Thursday, Barclays (LON:BARC) upgraded European Value stocks to positive amidst diminishing US election uncertainty.

With former President Donald Trump’s electoral win likely signaling Republican control of both the House and Senate, Barclays strategists expect reflationary policies to be implemented.

“We think this opens up the path for a broadening out of returns to parts of the market that usually do well post-US elections. In factor space, that means Value and Small Caps, with Growth and defensive Low Vol stocks typically performing worse in this environment,” noted strategists led by Matthew Joyce.

Concurrently, the bank downgraded European Growth stocks to Neutral in order to fund the upgrade to Value. They maintain a positive view on cyclical and rate-sensitive small caps and a negative stance on defensive low volatility stocks.

“Looking at European factor returns post the US election, we see a consistent pattern using either MSCI factors or our own factor baskets, with Value and Small Caps outperforming while Low Vol and Growth struggle more, at least in the first year,” Barclays observed.

The bank emphasized that Value stocks, being inexpensive but more cyclical and of lower quality, traditionally perform well post US elections once uncertainty clears.

This trend is expected to continue, especially with anticipated reflationary policies and deregulation under the Trump administration. Furthermore, Value stocks could experience improved return on equity (ROE) amid a gentle cyclical upswing following the election.

Strategists are upbeat about Europe’s small caps, anticipating that this group could benefit from rising activity, given that European rates stabilize. They also highlight the European Central Bank's (ECB) potential actions to boost Europe's competitiveness, providing further benefits even if US rates rise.