A November 20th report from Barclays Equity Research suggests that global equities markets will outperform U.S. stock markets in 2015, and anticipate outsize gains in the European and Japanese stock bourses in particular.
Barclays analysts Ian Scott, Hajime Kitano and Jonathan Glionna offer a positive outlook for stocks next year. “We expect global equities to generate a total return of 9% in 2015. We forecast earnings growth of 12% [compared to 6.5% in 2014], thus modest multiple contraction. Valuations are in line with historical norms, while bond yields should end the year higher.”
Global equities sector recommendations
Give their sanguine perspective on equities, Scott et al. recommend that investors overweight equities in their portfolios. In specific, they suggest a 10% overweight position in Japanese stocks and a 6% overweight position in Continental European stocks. They expect strong earnings growth in both Japan and Europe, as both regions stand to gain from currency weakness. The Barclays analysts also recommend underweighting U.S. equities and (Developed) Pacific ex-Japan equities. They note that “both regions look relatively expensive, the former compared with non-US stocks, the latter relative to Emerging Asian markets.” Barclays is neutral on the UK and Emerging Markets.
In terms of sector recommendations, Scott et al. believe cyclical sectors are underpriced and are likely benefit from stronger discretionary consumption and increased capital spending. They argue that financials should also “do well” as bond yields increase in the second half of the year. The analysts summarize their sector recommendations below: “Our largest overweights by global sector are Industrials, Financials and Consumer Discretionary. Our largest underweights are Healthcare and Consumer Staples, as the price paid for “quality” in non-US markets looks high.”
Increased weighting for selected issues in consumer discretionary sector
Scott and colleagues also updated their Global Recommended Portfolio in this report, including an increase in their weighting of the Consumer Discretionary sector to 14.9%. They accomplished this by establishing positions in Accor SA (EPA:AC) (OTCMKTS:ACRFY), Daimler AG (OTCMKTS:DDAIF) (ETR:DAI), Best Buy Co Inc (NYSE:BBY) and Kia Motors Corporation (KRX:000270) (OTCMKTS:KIMTF) in their Global Recommended Portfolio.