Barclays reiterates overweight on Value stocks
Strategists at Barclays reiterated their 'Overweight' stance on so-called 'Value' stocks in anticipation of a pick-up in euro area inflation.
Price pressures in the Eurozone were set to pick-up, the broker said, pointing to its own economic research on the issue.
That would see the European Central Bank turn "increasingly hawkish" in coming months, the broker said.
However, up until now political 'de-risking' had prevented bigger capital flows into Value stocks, leading exchange traded funds and active ones to remain 'Overweight' on shares of low-volatility companies, it said.
That did not mean the low volatility bubble was on the verge of collapsing just yet. Indeed, they expected to see another leg in that trade which would result in an additional 15% of underperformance in low volatility stocks which were already overvalued by 1.5 standard deviations.
"If reflation does materialise we could see Low Vol trade as low as 0.5 SDs as seen in 2003-07, implying up to 30% underperformance," Barclays said.
Hence, the broker reiterated its 'Overweight' stance on Value stocks, especially those enjoying positive earnings momentum.
It reiterated its 'Overweight' on Financials, Consumer Discretionary, Industrials, Technology and Telecoms.