Valuations and sentiment are shaping Barclays’ 2021 outlook. The price/earnings ratio of the MSCI world index is at levels unseen since the late 1990s technology bubble, it notes, while the percentage of global stocks trading above their 200-day moving average is the highest since 2015.
However, value can still be found in global stocks with European, emerging markets (EM) and Japanese equities all trading at a discount to their 10- and 20-year averages.
Barclays reckons non-US stocks will outperform in 2021 – partly because of valuations, partly because they have greater catch-up potential (Europe and EM earnings were more impacted by lockdowns so they are best positioned to benefit from vaccine rollout, the reflation trade and a cyclical upswing).
Profitability gap
Still, Europe’s profitability gap relative to the United States is unlikely to close any time soon. Barclays bemoans the “paltry” size of the European technology sector, which accounts for only 7 per cent of the MSCI Europe index compared to 21 per cent of the MSCI world index and 28 per cent for the US market.
The technology sector explains about two-thirds of the European underperformance relative to the global index and half of the underperformance versus US stocks since 2010, notes Barclays. 2021 should be a better year for European stocks, but structural problems remain.
