Equity investors going into 2016 with very little faith, says Barclays

The bank expects earnings per share growth of 12% in Continental Europe and 8% in the UK.

Barclays said that while European equities feel like a consensus 'long', overseas inflows have moderated considerably, and euro area households still have over 34% of their financial assets in cash.

“Risk appetite is depressed: ‘quality’ trades on a recessionary-scale premium, while both ‘value’ and ‘growth’ are discounted,” it said.

The bank noted that not only are defensive stocks continuing to outperform – something it finds at odds with improved economic data – but in another demonstration of the lack of faith in future prospects, stocks with high growth are being valued similarly to those with more pedestrian growth prospects.

It said that at the value end, there is little hope that high dividends will be sustained or that earnings of more cyclical companies will recover.

“One demonstration of the lack of faith in the future is the very modest bottom-up consensus expectations for 2016 earnings per share growth which has now come down to just 6.5%, aside from the forecasts made at the height of the global financial crisis in December 2008, this is the lowest year ahead forecast on record,” said Barclays.

The bank is ‘overweight’ financials, cyclicals and telecoms. It has also added exposure to energy at the expense of materials. It has staples, healthcare and utilities at ‘underweight’.

At the individual stock level, the bank made changes to its recommended portfolio, replacing Whitbread with ABB, Schroders with Aviva, Voestalpine with Boliden, Arcelor Mittal with ASML and Total with BP.