Stars aligning for eurozone equities but UK lacks catalysts, says Barclays

Barclays said in an equity strategy note on Wednesday that the eurozone remains its favourite region as the "stars align" after EU leaders agreed a rescue package, but UK equities remain an ‘underweight’ for the bank.

It said the €750bn stimulus package agreed on Tuesday is "potentially a game changer" for the region.

"The eurozone’s less muddled response to the Covid crisis, higher cyclicality, and positive news flow on deeper fiscal and institutional integration should make it increasingly appealing to global investors, in our view," it said.

It added that decisive progress on fiscal integration, along with credible ECB policy, could help the eurozone to re-rate versus the US and see inflows returning, as it is also cyclically exposed to the global recovery. The bank expects domestic plays and the periphery to benefit most.

On the flipside, however, it said that while UK equities have lagged year-to-date, are cheap and under-owned, it struggles to see them outperforming the eurozone and retains its ‘underweight’ rating.

"The UK market is defensive by nature, has high exposure to crowded quality/growth sectors, and lacks catalysts," Barclays said.