Investing.com - It’s hardly surprising that stocks are currently taking a breather, according to Barclays (LON:BARC), given stretched market technicals/sentiment. But overall positioning is not over-extended and bullishness is not widespread outside of Wall Street and the tech sector, suggesting there’s room for European equities to outperform.
Regional equity flows remain heavily tilted towards the U.S., analysts at Barclays noted, despite long U.S. dollars positions being trimmed. In Europe, equities are outperforming year-to-date, but are still not getting much bid despite the relative economic surprises starting to improve for the region.
“There is thus catch-up potential for Europe if cyclical sentiment continues to improve,” Barclays added.
Elsewhere, Japan's outperformance year-to-date has been backed by steady inflows, and the region looks fairly crowded now. China inflows have picked up most recently, largely driven by domestic buying, but it remains to be seen whether this can be sustained.
Back in Europe, corporate results have brought a sharp pick-up in buyback announcements in Europe, with financials and energy leading the way, said Barclays, and these companies have outperformed year-to-date.
“It could tempt more EU firms that have excess cash to do the same, thereby boosting valuations. From a cross-asset standpoint, we believe buybacks add to the positives for equities, contrasting with the record issuance bonds have to absorb this year,” Barclays said.