Barclays upgrades European Value stocks post election, downgrades Growth

Investing.com -- Barclays (LON:BARC ) upgraded European Value stocks to positive on Thursday, a move that comes as US election uncertainty dissipates.

With former President Donald Trump's victory and likely Republican control of both the House and Senate, Barclays strategists expect the implementation of reflationary policies.

“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,” strategists led by Matthew Joyce said in a note.

At the same time, the bank has downgraded European Growth stocks to Neutral to fund the upgrade to Value. They maintain a positive stance on cyclical and rate-sensitive small caps, while continuing to hold a negative view on defensive low volatility stocks.

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

The bank also points out that Value stocks, which are inexpensive but more cyclical and of lower quality, have historically done well post US elections once the uncertainty passes.

It expects this trend to continue, particularly as reflationary policies and deregulation are anticipated by the Trump administration. Moreover, Value stocks could see an improvement in their return on equity (ROE) if a mild cyclical upswing occurs following the election.

Strategists’ positive stance on Europe’s small caps comes as they believe the group could gain from an upturn in activity, provided European rates stay in check.

They also note the potential for the European Central Bank (ECB) to take further action to ensure Europe's competitiveness, which could be beneficial even if US rates rise.

Source: Investing.com