Barclays sees buying opportunities in European equities despite September risks

Barclays strategists maintain a cautiously optimistic outlook for global equities, advising institutional investors to 'buy dips' as a Goldilocks growth-policy environment persists, supported by an anticipated imminent Federal Reserve cutting cycle, rebounding earnings expectations, and structural tailwinds from artificial intelligence. Despite acknowledging risks such as elevated valuations, developed market fiscal positions, and European political noise, the firm notes ample dry powder and improving global growth, forecasting modest gains for the STOXX 600 by year-end 2025 and overweighting European financials, IT, and emerging markets, including China.

Analysis

Barclays strategists present a cautiously optimistic outlook for global equities, recommending that investors buy dips amid what they term a "Goldilockish" growth-policy environment. This view is underpinned by several factors: an anticipated imminent start to the Federal Reserve's rate-cutting cycle, global growth holding up better than previously expected, and rebounding earnings expectations after a weak first half. The firm notes that while investor positioning is higher, substantial sideline capital remains, and structural tailwinds from artificial intelligence continue to fuel momentum in technology. However, Barclays also flags significant risks, including elevated valuations, historically weak September seasonality, European political instability centered on France, and concerns over the fiscal health of developed markets. A key point of caution is the divergence in earnings forecasts for 2026, where Barclays' 8% growth projection stands in contrast to a more optimistic 12% consensus. Geographically, the U.S. market is seen as strong, while Europe's laggards are viewed as having catch-up potential, leading to a year-end 2025 STOXX 600 target of 570. The firm remains overweight on China, citing a tech-led rally and a floor on growth from stimulus, while also warning that China's AI boom poses a threat to U.S. tech dominance. For Europe, Barclays is overweight financials, industrials, IT, and communication services, and underweight defensive sectors like energy, staples, and utilities.

Key Decisions for Investors

• Consider using market volatility and seasonal weakness in September as an opportunity to increase equity exposure, in line with the 'buy the dips' strategy advocated by Barclays.
• Re-evaluate regional allocations by maintaining a neutral stance between the U.S. and Europe, while favoring an overweight position in emerging markets, particularly China, to capture its tech-driven momentum.
• For European portfolios, it may be prudent to tilt exposure towards cyclical sectors with catch-up potential, such as financials and industrials, while potentially reducing weightings in underperforming defensive sectors like utilities and real estate.
• Investors should closely monitor earnings revisions, as the significant gap between Barclays' 8% EPS growth forecast for 2026 and the 12% consensus signals a potential risk of future downward adjustments to market expectations.