U.S. Equity Market Leadership Under Threat for 2014
NEW YORK (The Street) -- Europe, Japan and emerging markets are likely to outperform U.S. stocks next year, with Barclays strategists pointing to a greater-than-expected pickup in the domestic economy as a risk to equity valuations.
They warn that concern around the wind-back of Fed Reserve bond buying is likely to threaten share valuations and cause a jump in bond yields.
"Profit margins are also high and we are at the point in the cycle when they tend to peak," head of research Larry Kantor told a media conference this morning. He said Fed Reserve rate hikes could start before the end of 2014, spelling a "ticking clock" for risk assets.
By contrast, a superior earnings outlook and more supportive monetary policy in Europe and Japan bodes well for those markets in 2014, head of asset allocation research for the Americas Michael Gavin said.
Barclays strategists expect 27% total returns from European equities next year, 18% from Japanese equities and just 10% for U.S. equities.
Strong Chinese export data over the weekend was cited as reason for optimism around emerging markets. Chinese exports rose 12.7% in November -- a trend which bodes well for export-sensitive emerging market economies. A pick-up in global manufacturing is expected to boost prospects for countries such as Korea, Mexico and Taiwan. However Barclays strategists remain cautious around the so-called fragile five economies suffering from large current account deficits: India, Indonesia, South Africa, Brazil and Turkey.
Head of U.S. portfolio strategy Barry Knapp likes stocks sensitive to global growth and capital spending, but is circumspect on the outlook for financials and materials. "The market needs to come to grips with China [Chinese growth] rebalancing while the financial sector is struggling from a lack of asset growth," he said.
-- By Jane Searle
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