CNBC reports that with inflation fears persisting and the economic cycle maturing, Barclays sees a period of higher volatility and lower returns for European stock markets.
However, analysts at the British lender still find equities more attractive than bonds, and has recommended that investors should look to buy the dip.
In an October strategy update, Barclays European equity analysts cautioned that inflation is “sticky,” the economic cycle is maturing, price-to-earnings ratios are high and earnings per share growth is set to moderate, while central banks are becoming more hawkish. Price-to-earnings ratios are an important metric used by traders to gauge the value of a stock.
Yet Barclays retains a positive outlook for equities, arguing that the TINA (there is no alternative) principle still prevails, with fund inflows having slowed lately. With price-to-earnings ratios having compressed, the bank expects future returns to be lower, but still positive.
“As risk premia increase, risk-adjusted returns will be lower. Yet we still find equities more attractive than bonds and believe dips should be bought,” Head of European Equity Strategy Emmanuel Cau said.
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