Barclays Capital Tempers Bullish Stance on Stocks

Barclays Capital is tempering its bullish stance on European stocks in the short term as the investment bank sees markets entering a sideways correction phase.

Edmund Shing, head of European equity strategy at Barclays Capital, told CNBC that three factors will determine the length of the correction : A consensus among Chinese data that shows decent gross domestic product growth; whether or not Spain can stick to its 5.3 percent budget deficit target for this year; and finally the rising price of oil.

But Shing cautioned against getting too negative too quickly. “When we get those three conditions fulfilled, then I think European equities can rally quite a bit higher, through to the end of the year,” he said.

So far, European stock markets have posted a strong start to the year, with the FTSE gaining more than 3 percent, the CAC up 6 percent, and the DAX leading the way with a gain of more than 16 percent.

Analysts at Barclays Capital say small-cap value stocks will continue to outperform, but Richard Cookson, global chief investment officer from Citi Private Bank, warned that by holding small caps, “you are far more exposed to the domestic European economy, which is being shredded as we speak.”

Shing defends his positions: “Small caps should continue to outperform large caps, as broad-based economic stabilization reduces the level of earnings risk.”

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