Equity ResearchGlobal & European Equity Strategy Ian Scott +44 20 313 47668
[email protected] Barclays, UK Dennis Jose, CFA +44 20 313 43777
[email protected] Barclays, UK Jason Hart +44 20 313 47425
[email protected] Barclays, UK Sarah Grenham +44 20 355 52609
[email protected] Barclays, UK Our Favourite Charts for 2016 December 2015 Aristeidis Ioannidis +44 20 313 42364
[email protected] Barclays, UK Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered/qualified as research analysts with FINRA. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES BEGINNING ON SLIDE 146. Barclays Global & European Equity Strategy Team Ian Scott is a Managing Director and Head of Global and European Equity Strategy. Ian joined Barclays in August 2013, having held similar positions at Lehman Brothers and Nomura. Ian was voted First in Institutional Investor Survey for European Strategy in both 2004 and 2010. Ian has a B.A. and M.A. in Economics from The University of Warwick. Dennis Jose Ian Scott Dennis Jose is a Director with the Global and European Equity Strategy Team at Barclays. Dennis has been with the team for the past six years, prior to which he worked in Credit Strategy and Algorithmic Trading Strategy at Lehman Brothers. Dennis holds an MBA from the Indian Institute of Management, Calcutta, and a Masters cum Bachelors degree in Chemical Engineering from the Indian Institute of Technology, Delhi. He is a CFA charterholder. Jason Hart Sarah Grenham Aristeidis Ioannidis Jason Hart is a Vice President with the Global and European Equity Strategy Team at Barclays. He joined the team in April 2014 prior to which he had worked on a range of front office equity technology platforms at companies including Jefferies, Fidelity Worldwide Investments and Marshall Wace. Jason holds a PhD in Computational Chemistry from the University of Manchester. Sarah Grenham has worked at Barclays since 2011, and has been a member of the Global & European Equity Strategy team and European Equity Product Management Group since February 2014. Sarah has a BA in French and German from Durham University. Aristeidis Ioannidis is an Assistant Vice President with the Global and European Equity Strategy Research team. Before taking up his current position in April 2015 he worked in Portfolio Market Risk, and prior to that he worked in the Structured Rates Risk and P&L team. Aristeidis joined Barclays in 2007 after graduating from London School of Economics with an MSc in Accounting and Finance. 2 December 15 Key Aspects of our Strategy Overweight Europe ex-UK, EM, Japan, Banks and Cyclicals Global Equity Outlook: Market upside for Global Equities (p.4) Overweight Continental European Equities (p.21) Further through the cycle, earnings growth advantage over international markets turning Key Style Recommendations (p.92) Depressed valuation; Severely Negative sentiment; A stabilisation in Chinese economic data is key Underweight US Equities (p.83) Signs of corporate change; Low valuations – discount cyclical peak Overweight Emerging Market Equities (p.65) Wage increases and higher rates should squeeze margins Overweight Japanese Equities (p.52) Discount to US and history; QE boosting domestic economy; earnings growth accelerating Modest Underweight on UK Equities (p.44) Sentiment at an extreme; valuations in line; growth fears overdone, in our view Quality looks very expensive, Value looks attractive, High Growth also looks attractive, Fed hike supports Value Overweight Banks, Cyclical Sectors and Value (p.104) Cyclical performance near 2009 lows; Safety premium looks exaggerated; Banks appear heavily de-rated 3 December 15 CONTENTS Global Equity Outlook Sentiment at an extreme Valuations in line Growth fears overdone 4 December 15 . short % bulls .bears Asset Managers' Net long Position 60% 50% Survey Sentiment Measure (RHS) 40% 50% 30% 40% 20% 30% 10% 20% 0% 10% -10% Barclays Equity Strategy 0% 2010 -20% 2011 2012 2013 2014 2015 Source: Barclays Research. DataStream.% of bears in Investors’ Intelligence Survey. Survey Sentiment Measure refers to gap between %of bulls . BACK TO CONTENTS 5 December 15 . CFTC.Sentiment has yet to fully recover from the lows in August Positioning and sentiment show lack of enthusiasm towards stocks % long . Investors Intelligence Asset managers’ net position calculated as longs – shorts in US S&P 500 mini contract as % of total positions. Investors Intelligence. MSCI.bears 50 Linear trend line 40 30 R² = 0.4525 20 10 0 -10 -20 Barclays Equity Strategy -30 -30 -20 -10 0 10 20 30 40 50 Bulls . DataStream.Sentiment recovery is still consistent with positive returns The bull – bear gap moves closely with the long – short position adopted by money managers in the S&P 500 mini contract Global stock mkt returns over subsequent 6 mths 60 Stock market returns vs. BACK TO CONTENTS 6 December 15 .Bulls .bears Source: Barclays Research. Japanese. Latest data point is for October. MSCI.1% of US. We also add net purchases of EM mutual funds and ETFs. *With the October Euro Area figure proxied by the German data alone. % of market cap) 4% 3% 2% 1% 0% -1% -2% Stock Market Crash Gulf War ERM Crisis Peso Crisis Asian Russian Crisis Crisis Tech Crash Subprime Sovereign Debt Crisis Taper Today Tantrum Lehman Crash -3% Barclays Equity Strategy -4% 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Barclays Research.Non-resident equity investors have been selling equities According to our calculations. US Dept of Treasury Note: Chart shows the net purchases of US. Bank of Japan. BACK TO CONTENTS 7 December 15 . ECB. EPFR. Euro Area* and EM equities 5% Cross Border Flows (3m annualised. non-resident investors sold an annualised 1. Japanese. and Euro Area equities by non-resident investors. 0% 0 1.0% -60 Cross Border Flows (12m sum.0% -20 2.0% 60 Barclays Equity Strategy -2. Bank of Japan. % of market cap) MSCI ACWI 12m fwd returns (rhs.0% 1987 80 1991 1995 1999 2003 Source: Barclays Research. EPFR. ECB. 2007 2011 2015 BACK TO CONTENTS 8 December 15 . %) -40 3. US Dept of Treasury.0% 20 0. MSCI.0% 40 -1.12-month cross border flows and subsequent returns Past behaviour suggests that periods of heavy selling by non-resident investors tend to be followed by above-average returns 4. inverted. Stock analysts also remain quite cautious Analysts are not optimistic: % of buy ratings for stocks in ACWI 65 Percentage of buy recommedations from analysts Tech Bubble 60 Credit Bubble 55 U shaped Recovery 50 45 Bottom of Tech Selloff EM Crisis 40 Bottom of Financial Crisis Today Barclays Equity Strategy 35 1995 1997 1999 2001 2003 2005 Source: Barclays Research. IBES. DataStream. MSCI. 2007 2009 2011 2013 2015 BACK TO CONTENTS 9 December 15 . 5% is the 2nd lowest since 1988 35 Consensus forecast for next year's earnings growth measured in December every year 30 Today 25 20 Not 10-12% this time 15 10 5 Barclays Equity Strategy 0 1988 1991 1994 1997 2000 Source: Barclays Research.Consensus earnings growth forecasts not 10-12% this time Next year’s EPS growth forecast at 6. DataStream. MSCI . Consensus is from IBES global aggregates for Weighted Year-Over-Year Growth In EPS Earnings 10 2003 2006 2009 2012 2015 BACK TO CONTENTS December 15 . 00 1980 1985 1990 1995 2000 Source: Barclays Research.00 Average 30.00 25.Global CAPE below average at 18 Global CAPE at around 15% below its average level since 1980 45.00 Barclays Equity Strategy 0.00 Global CAPE 35.00 10. DataStream. MSCI 2005 2010 2015 BACK TO CONTENTS 11 December 15 .00 5.00 15.00 20.00 40. 18x CAPE should mean healthy forward returns There has been a relatively robust fit with forward market performance 300% Subsequent 5 year returns 250% A CAPE less than 22 has been associated with positive 5 year forward returns 200% 150% 100% 50% 0% Barclays Equity Strategy -50% 0 5 10 15 20 25 30 35 40 45 Global CAPE Source: Barclays Research. MSCI. DataStream. BACK TO CONTENTS 12 December 15 . 0 1975 2015 1980 1985 Source: Barclays Research. MSCI 13 1990 1995 2000 2005 2010 2015 BACK TO CONTENTS December 15 .0 25 2.0 15 1.0 5 0.5 30 3. in our view Global PE multiple.5 Global price/book Global PE 35 4. in line with the longterm average Price/book is in line with the long-term average as well 40 4. MSCI 1990 1995 2000 2005 2010 Barclays Equity Strategy 0.0 Average Average 3.5 10 1.5 Barclays Equity Strategy 0 1970 1975 1980 1985 Source: Barclays Research.Other global valuations do not look expensive.5 20 2. We also assume a constant risk premium of 5%.adv. growth of 3% Investors’ long-run growth expectations have come down since last year Annual % growth 16 Long-term implied earnings growth 14 Global Nominal GDP growth . DataStream. Implied growth is the output of a residual income model in which the first three years of earnings are given by consensus estimates. 12 10 8 6 4 2 0 -2 -4 Barclays Equity Strategy -6 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Barclays Research. then a fade over the next five years to long-run average ROE. IMF. Econ. BACK TO CONTENTS 14 December 15 .We estimate the market is priced for long-run nom. IBES. MSCI NB. DataStream. OECD.Monetary growth is strong Markets should be able to withstand a Fed rate hike 20 Global Real Money Growth (lagged 9 months. MSCI. 2005 2010 2015 BACK TO CONTENTS 15 December 15 .RHS) 15 60 40 10 20 5 0 -20 0 -40 Barclays Equity Strategy -5 1985 -60 1990 1995 2000 Source: Barclays Research. % y-y) 80 Global Equity Return (% y-y. ROEs are fine compared to the last 3 hiking cycles Source: Barclays Research. past hiking cycles Stock are cheaper.Global valuations and profitability vs. MSCI BACK TO CONTENTS 16 December 15 . lhs) 10 60 Barclays GDP Forecast Global Consensus Earnings Growth (%y/y. 2007 2010 2013 2016 BACK TO CONTENTS 17 December 15 . Barclays Research.Global economic growth and earnings growth Barclays’ economic forecasts are consistent with modest EPS growth in 2016 Global Real GDP growth (%y/y. MSCI. DataStream. rhs) 8 40 6 20 4 0 2 -20 0 -40 -2 Barclays Equity Strategy -4 1989 -60 1992 1995 1998 2001 2004 Source. IBES. (5) MSCI Pacific ex-Japan ($). DataStream.3% US I Emerging Markets Global VII VI Source: Barclays Research.0% Pacific ex-Japan V -4.1% 9.8% -8.0% 1.2% 0.4% -1. (4) Topix.0% Japan IV 72.4% 0.3% 5.3% 8.0% Europe Ex-UK II -5. (6) MSCI Emerging Markets index.7% 0.2% 6.9% 7. (3) FTSE 100. (7) MSCI All-Country World index *2013 and 2014 numbers are actual growth numbers.8% -1.6% -8.5% 4.0% 11. 2015 numbers are bottom-up consensus.4% 12. BACK TO 18 CONTENTS December 15 .7% 4.2% 7.6% -11.9% 2.0% UK III -2. MSCI. (2) MSCI Europe ex-UK (EUR).7% 8. Notes: (1) S&P 500. UK and Japan 2013 2014 2015* 2016* 5.0% 1. All forecasts are for earnings defined by IBES for respective indices.Global Earnings Growth Forecasts We see the best earnings prospects coming in Continental Europe.4% 19. MSCI. Notes: (1) S&P 500. (3) FTSE 100. (2) MSCI Europe ex-UK (EUR).Global Index Targets Our targets for the different indices are as follows… Source: Barclays Research. DataStream. (5) MSCI Pacific ex-Japan ($). (4) Topix. (6) MSCI Emerging Markets index. (7) MSCI All-Country World index BACK TO CONTENTS 19 December 15 . 2% 3.8% 1.1% 56.2% LATAM 2.0% 100.0% 1.0% 100.2% 6.6% 14.3% 1.7% 4.Recommended Regional Weightings Our recommended regional weightings are as follows… Recommended Weight Benchmark Weight Gap North America 39. BACK TO CONTENTS 20 December 15 .9% -2.6% Asia 9.0% UK Japan Pacific ex-Japan Emerging Markets of which: Total Source: Barclays Research.7% -2.5% 14.0% 6.6% 11.1% -17. MSCI.1% 15.5% 4.1% 1.3% 9.0% 0.0% Europe ex-UK 27.0% 6.4% CEEMEA 3.1% 8.3% 1. DataStream.6% 2. CONTENTS Overweight Continental Europe QE is boosting the domestic economy European equities appear to be cheaply priced Earnings growth is expected to accelerate in 2015 21 December 15 . in our view… M1 money supply has led business confidence by 9 months 18 Eurozone M1 (%y/y. led by 6 months. ECB 2007 2009 2011 2013 2015 BACK TO CONTENTS 22 December 15 . lhs) German IFO (%y/y. rhs) 25% 15 15% 12 9 5% 6 -5% 3 -15% 0 Barclays Equity Strategy -3 1993 -25% 1995 1997 1999 2001 2003 2005 Source: Barclays Research.The key to the future is money growth. 4 -5 2. MSCI 23 2009 2011 2013 2015 BACK TO CONTENTS December 15 .0 2003 2005 2007 Source: Barclays Research. yoy) ECB BLS: Loans or Credit Lines to Enterprises 25 3.8 10 5 2.2 20 3. MSCI Barclays Equity Strategy 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 -10 2.0 15 2.4 Loans to Non Fin Corps (1-5years.Signs of life in the EA credit cycle Loan demand is improving 30 Firms are borrowing to invest 3.2 Barclays Equity Strategy Source: Barclays Research.6 0 2. yoy) Loans to Households (1-5years. %y/y) -35 -4 EA Consumer Confidence led by 6 months (rhs) -6 1996 1998 2000 2002 2004 2006 Source: Barclays Research. DataStream 2008 Barclays Equity Strategy 2010 2012 2014 -45 2016 BACK TO CONTENTS 24 December 15 .Consumption should continue to recover Given the improvements seen in Consumer Confidence 8 5 6 -5 4 2 -15 0 -25 -2 EA Retail Sales Ex-Autos (SA. In the Euro Area. %y/y. rhs) 15 60 10 40 20 5 0 0 -20 -40 -5 -60 Barclays Equity Strategy -10 1999 -80 2001 2003 2005 2007 2009 Source: Barclays Research. MSCI 2011 2013 2015 BACK TO CONTENTS 25 December 15 . DataStream. lhs) 80 Continental European Stocks (%y/y. ECB QE is transmitting to money supply… …the recent acceleration should support future returns 20 100 Eurozone Real M1 (6m lead. This outlook means bond yields may increase for the right reasons M1 money supply suggests another c. rhs) 14 2 12 1 10 8 0 6 -1 4 -2 2 Barclays Equity Strategy 0 1991 -3 1993 1995 1997 1999 2001 2003 Source: Barclays Research.1% move higher in yields EA: M1 money supply growth (12m lead. lhs) 16 3 German 5yr yields (12m change. OECD. MSCI 2005 2007 2009 2011 2013 2015 BACK TO CONTENTS 26 December 15 . we arrive at a revenue growth forecast of 3.2% for 2016. which is slightly higher than the bottom-up consensus forecast 2.We forecast 3% revenue growth in Conti Europe in 2016 This compares to 2.7% growth. Utilising our economists’ projections for these variables. MSCI . DataStream. Details of model available on request BACK TO CONTENTS 27 December 15 .7% growth from consensus Actual 20 Model Forecast with Flat FX Consensus 15 10 5 0 -5 -10 Barclays Equity Strategy -15 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Source: Barclays Research. 12%. DataStream On modelling the earnings. MSCI. we arrive at a growth rate of c. 7% for 2016. Details of model available on request 28 BACK TO CONTENTS December 15 . which is higher than the bottom-up consensus of c.We forecast 12% earnings growth in Conti Europe in 2016 This compares to 7% growth from consensus Barclays Equity Strategy Source: Barclays Research. Consensus is from IBES global aggregates for Weighted Year-Over-Year Growth In EPS Earnings 29 2003 2006 2009 2012 2015 BACK TO CONTENTS December 15 .Consensus earnings growth forecasts not 10-12% this time Next year’s EPS growth forecast at 6.5% is the 2nd lowest since 1988 35 Consensus forecast for next year's earnings growth measured in December every year 30 Today 25 20 Not 10-12% this time 15 10 5 Barclays Equity Strategy 0 1988 1991 1994 1997 2000 Source: Barclays Research. MSCI . DataStream. earnings have been growing at 15% …is driven by better GDP growth this year. the weaker euro and a low base 80% 70% MSCI Europe trailing earnings growth (%y/y) MSCI Europe ex Energy and Materials: trailing earnings growth (%y/y) 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% 1996 Barclays Equity Strategy 1998 2000 2002 2004 2006 Source: Barclays Research. DataStream. MSCI.Ex-energy and materials. OECD 2008 2010 2012 2014 BACK TO CONTENTS 30 December 15 . MSCI Note: Margins as implied by Sales and Earnings forecasts 2011 2013 2015 BACK TO CONTENTS 31 December 15 .Corporate pricing is improving relative to labour costs This is supportive of a margin recovery % Year-on-year ULC Growth: Euro Area Corporate Pricing 7 6 5 4 3 2 1 0 -1 Barclays Equity Strategy -2 2001 2003 2005 2007 2009 Source: Barclays Research. Corporate pricing is improving relative to labour costs This is supportive of a margin recovery % Point Gap % Point Gap Euro Area Corp. Pricing- ULC Growth 3.0 4.0 Change in Profit Share of GDP (RHS) 2.0 2.0 1.0 0.0 0.0 -1.0 -2.0 -2.0 -4.0 -3.0 -6.0 -4.0 Barclays Equity Strategy -5.0 2001 -8.0 2003 2005 2007 2009 Source: Barclays Research, MSCI Note: Margins as implied by Sales and Earnings forecasts 2011 2013 2015 BACK TO CONTENTS 32 December 15 We estimate the market is priced for long-run nom. growth of 0% This is even below today’s nominal GDP growth figures Annual % growth 14% Long-term implied earnings growth 12% Euro Area Annual Nominal GDP Growth 10% 8% 6% 4% 2% 0% -2% -4% Barclays Equity Strategy -6% 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Barclays Research, DataStream, IBES, MSCI NB. Implied growth is the output of a residual income model in which the first three years of earnings are given by consensus estimates, then a fade over the next five years to long-run average ROE. We also assume a constant risk premium of 5%. BACK TO CONTENTS 33 December 15 The improvements in the economy do not appear to be reflected in the way European stocks are priced Today’s CAPE has typically led to 105% total returns over subsequent 5 yrs The European cyclically-adjusted PE 13% below the long-term average 350% 45 MSCI Europe: Subsequent 5y returns vs 10yr CAPE MSCI Europe: Cyclically-adjusted PE (10 year) 300% 40 Long-term average 250% 13% discount 35 200% 30 150% 25 100% 20 50% 15 0% 5 10 5 -100% Barclays Equity Strategy 0 1980 10 15 20 25 30 35 40 45 -50% -150% 1985 1990 Source: Barclays Research, MSCI 1995 2000 2005 2010 2015 Today's CAPE has provided 105% returns over subsequent 5 years Source: Barclays Research: MSCI 34 Barclays Equity Strategy BACK TO CONTENTS December 15 Note: Equity risk premium calculated using a traditional Gordon Growth Model 2001 2003 2005 2007 Source: Barclays Research. MSCI 35 2009 2011 2013 2015 BACK TO CONTENTS December 15 . Bonds and Credit Equity Risk Premium is still very high. % point ERP is still very high European Equity Risk Premium Pan Euro Inv Gd credit risk premium 7 6% 6 Europe: 12 month forward earnings yield less BAA credit yield 5 5% 4 4% 3 IG risk premium near lows 3% 2 1 2% 0 -1 1% -2 0% 2001 Barclays Equity Strategy 2003 2005 2007 2009 2011 Barclays Equity Strategy 2013 -3 1999 2015 Source: Barclays Research. DataStream. DataStream. while credit spreads are very low 7% The gap between earnings yield and credit yield is the widest Yield Gap.European Equities Look Attractive vs. MSCI 2007 2009 2011 2013 2015 BACK TO CONTENTS 36 December 15 . DataStream. IBES.Analyst sentiment is also very low Only 43% of European stock recommendations are a buy 65 Percentage of buy recommedations from analysts Tech Bubble 60 Credit Bubble 55 U shaped Recovery 50 45 Bottom of Tech Selloff EM Crisis 40 Bottom of Financial Crisis Today Barclays Equity Strategy 35 1995 1997 1999 2001 2003 2005 Source: Barclays Research. MSCI 2007 2009 2011 2013 2015 BACK TO CONTENTS 37 December 15 . IBES. DataStream.Sentiment this negative has been a positive sign for the market STOXX 600 and percentage of buy recommendations Less than 45% Greater than 52% STOXX 600 450 400 350 300 250 200 150 100 Barclays Equity Strategy 50 1995 1997 1999 2001 2003 2005 Source: Barclays Research. 10 0.5 1975 0.70 0.30 Europe/US: ROE (rhs) 1.00 0. MSCI 2000 2005 2010 2015 BACK TO CONTENTS 38 December 15 .6 0.60 Barclays Equity Strategy 0.0 1.2 1.7 0.European stocks are at a multi-decade discount to US stocks Investors do not appear to be factoring in an improvement in relative profitability 1.20 1.8 0.40 MSCI Europe/US: P/Book 1.80 0.9 1.1 1.90 0.50 1980 1985 1990 1995 Source: Barclays Research. DataStream. On a relative basis too. MSCI 2010 2011 2012 2013 2014 2015 BACK TO CONTENTS 39 December 15 . earnings revisions are key The performance of Europe vs. US can primarily be explained by earnings 180 MSCI Europe vs US: Relative performance (total returns. $) MSCI Europe/US: Relative forward total earnings ($) 170 160 150 140 130 120 110 100 90 Barclays Equity Strategy 80 2003 2004 2005 2006 2007 2008 2009 Source: Barclays Research. DataStream. DataStream. Europe .Relative performance has de-coupled from data surprises Recent European data has been encouraging but performance has not Data Surprise Gap Gap in Data Surprises: EZ-US 150 15 Rel. MSCI Jul 14 Jan 15 Jul 15 BACK TO CONTENTS 40 December 15 . Perf.US $ (rhs) 100 10 50 5 0 0 -50 -5 -100 -10 Barclays Equity Strategy -150 Jan 12 -15 Jul 12 Jan 13 Jul 13 Jan 14 Source: Barclays Research. 0 Conti Europe Performance relative to the MSCI ACWI over the next 6 months (rhs) 2.5 20% 2. DataStream.0 -0.5 0% 0.0 0. MSCI *Real yield gap defined as the difference between equity capitalisation weighted 10-year sovereign yield and contemporaneous inflation **MSCI Continental European index total return less MSCI Developed Markets total return one year ahead 41 Jan-13 Jan-15 BACK TO CONTENTS December 15 .0 Barclays Equity Strategy -1.Relative to Developed Markets. this has seen continental European stocks outperform 3.5 Jan-99 -20% Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Source: Barclays Research.5 10% 1.5 -10% -1. the risk premium on Continental European stocks is higher On a six month view.0 1.5 30% Conti Europe 3. The risk to our overweight call is that it is a little consensual However. international investors have backed away from the market recently Eur bn Purchases of Euro Zone equities by overseas investors 60 40 20 0 -20 -40 Barclays Equity Strategy -60 2008 2009 2010 2011 2012 Source: Barclays Research. ECB 2013 2014 2015 BACK TO CONTENTS 42 December 15 . DataStream 43 BACK TO CONTENTS December 15 . in our view …while net issuance of equity declined in Q3 Euro Area households are holding a lot of cash… % Households Cash as % Of total financial assets 37% 36% 35% 34% 33% 32% 31% 30% 29% Barclays Equity Strategy Barclays Equity Strategy 28% 1999 2001 2003 2005 Source: Barclays Research. DataStream 2007 2009 2011 2013 2015 Source: Barclays Research.Buying from domestic investors needs to pick up. rates should eventually go up Profit margins for Domestic UK companies under pressure 44 December 15 . CONTENTS Modest Underweight on the UK Consumer confidence could decline Wages are increasing. MSCI 2011 2013 2015 BACK TO CONTENTS 45 December 15 .FTSE 250 and FTSE 100 earnings growth Mid-cap UK earnings growth has also slowed down % year-on-year 100 FTSE 100 FTSE 250 80 60 40 20 0 -20 -40 Barclays Equity Strategy -60 2001 2003 2005 2007 2009 Source: Barclays Research. DataStream. This is again slightly ahead of the bottom-up consensus growth forecast of 6% for 2016.Details of model available on request 46 Q1 2014 Q1 2015 Q1 2016 Q1 2017 BACK TO CONTENTS December 15 . MSCI our model suggests that earnings growth for the FTSE All Share Index recovers from -20% in 2015 to +8% in 2016.We forecast 8% earnings growth in the UK in 2016 This compares to consensus of 6% Actual Model Forecast Consensus 80 60 40 20 0 -20 -40 Barclays Equity Strategy -60 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Source: Barclays Research. UK earnings estimates have seen big downgrades Earnings forecast to decline by 14% in 2015 Year end EPS for MSCI UK 2007 2008 2009 2010 2012 2013 2014 2015 2011 180 170 160 150 140 130 120 110 Barclays Equity Strategy 100 2007 2008 2009 2010 2011 2012 Source: Barclays Research, DataStream, MSCI 2013 2014 2015 BACK TO CONTENTS 47 December 15 Consumer confidence around UK elections A consistent decline in UK consumer confidence post elections Consumer Confidence Election date = zero 1983 1987 1992 1997 2001 2005 2010 10 5 0 -5 -10 -15 -20 -25 Election Date Barclays Equity Strategy -30 -24 -22 -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 Months before/ after election date Source: Barclays Research. Gfk Note: Confidence has been re-based to zero in the month of the election BACK TO CONTENTS 48 December 15 Past and current electoral cycles and consumer confidence In 2010, confidence peaked ahead of the election Consumer Confidence Election date = zero Average* 10 2010 5 Current 0 -5 -10 -15 -20 Election Date Barclays Equity Strategy -25 -24 -22 -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 Months before / After Election Date Source: Barclays Research, DataStream Note: Rebased to zero at election date. *Average is of past 7 elections BACK TO CONTENTS 49 December 15 total returns) 60 30 Consumer Confidence (yoy chg. DataStream.Domestic UK Consumer Basket and consumer confidence A decline in confidence may lead to underperformance for domestic consumer stocks 80 40 UK Domestic Consumption Basket vs. Market (%y/y. rhs) 40 20 20 10 0 0 -20 -10 -40 -20 -60 -30 Barclays Equity Strategy -80 1997 -40 1999 2001 2003 2005 2007 Source: Barclays Research. Gfk 2009 2011 2013 2015 BACK TO CONTENTS 50 December 15 . DataStream *Gross margin of UK stocks with high wage costs 2011 2013 2015 BACK TO CONTENTS 51 December 15 .00 Barclays Equity Strategy 10 2001 -4.00 16 2.00 15 1.00 3.00 12 -2.00 17 4.00 14 0.00 13 -1.00 11 -3.Profit margins for UK stocks with high wage costs could decline The margins for these stocks have been squeezed recently as wages have picked up % margin % year-on-year Gross Margin* Real average earnings growth (RHS) 18 5.00 2003 2005 2007 2009 Source: Barclays Research. valuations again appear attractive 52 December 15 . CONTENTS Overweight Japan Structural change in underway Companies are increasing cash returns to shareholders Expect earnings recovery to continue. Japanese non-financial corporate sector financial surplus/deficit Corporate sector “saving” is arguably holding back the wider Japanese economy % of GDP 10% Japanese non-fin. Corp sector financial surplus 5% 0% -5% -10% Barclays Equity Strategy -15% 1980 1985 1990 1995 2000 Source: Barclays Research, MoF 2005 2010 2015 BACK TO CONTENTS 53 December 15 Japanese and US non-financial balance sheet leverage Japanese balance sheet leverage is already low and still falling Ratio Japanese Non- Financial Net Debt / Equity Ratio 1.2 US Non- Financial Net Debt / Equity Ratio 1.0 0.8 0.6 0.4 0.2 0.0 1996 1998 2000 2002 2004 2006 Source: Barclays Research, DataStream 2008 2010 2012 2014 BACK TO CONTENTS 54 December 15 Japanese companies now buying back 1% of market cap Historically this may have been viewed as a sign of a market top in Japan 1.5% Buying from Non Financials (3m annualised, % market cap) 1.0% 0.5% 0.0% -0.5% Barclays Equity Strategy -1.0% 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Barclays Research, DataStream BACK TO CONTENTS 55 December 15 4QMA 18 Operating Profit 16 Investment 14 12 10 8 6 4 2 Barclays Equity Strategy 0 1955 1960 1965 1970 1975 1980 1985 Source: Barclays Research. they have been more disciplined with their capital Yen (tr). DataStream 1990 1995 2000 2005 2010 2015 BACK TO CONTENTS 56 December 15 .In the past Japanese companies used to over-invest This time round. MSCI.Japanese dividend estimates have been revised higher Dividend announcements have exceeded expectations Div / share 19 FY 2015 FY 2016 18 17 16 15 14 Barclays Equity Strategy Barclays Equity Strategy 13 Jan-13 Jul-13 Jan-14 Jul-14 Source: Barclays Research. IBES *Based on index for MSCI Japan (@:JPMSCIP) Jan-15 Jul-15 BACK TO CONTENTS 57 December 15 . DataStream. MoF 1990 1995 2000 2005 2010 2015 BACK TO CONTENTS 58 December 15 . DataStream.Margins have improved but ROE has not as much Japanese non-financial companies’ ordinary profit margin and ROE 18% 7% Japan ROE 16% 6% Japan Profit Margin (rhs) 14% 5% 12% 10% 4% 8% 3% 6% 2% 4% 1% 2% Barclays Equity Strategy 0% 1955 0% 1960 1965 1970 1975 1980 1985 Source: Barclays Research. MSCI 2001 2004 2007 2010 2013 2016 BACK TO CONTENTS 59 December 15 . March 2016 20 15 10 5 0 -5 Barclays Equity Strategy -10 1980 1983 1986 1989 1992 1995 1998 Source: Barclays Research.There is considerable scope for companies to improve pay-outs While earnings have increased. DataStream. shareholders have yet to reap the benefits Yen tr. trailing 4Q Dividends plus buybacks Earnings 25 Fwd ests. MSCI.Earnings should continue to grow Our model for Japanese earnings growth* 120 Japan: Earnings growth (%y/y) Model 80 Forecast 40 0 -40 -80 Q1 2015 Q1 2014 Q1 2013 Q1 2012 Q1 2010 Q1 2009 Q1 2008 Q1 2007 Q1 2006 Q1 2005 Q1 2004 Q1 2003 Q1 2002 Q1 2001 Q1 2000 Q1 1999 Q1 1998 Q1 1997 Q1 1996 Q1 1995 Q1 1994 Q1 1993 Q1 1992 Q1 1991 *Model details available on request Source: Barclays Research. IBES Q1 2011 Barclays Equity Strategy -120 BACK TO CONTENTS 60 December 15 . DataStream. MSCI 2008 2010 2012 -50% 2014 BACK TO CONTENTS 61 December 15 .The real yield gap supports buying Japanese stocks. in our view Real yield gap vs one year forward performance 5 50% Yield Gap to MSCI ACWI: Japan 4 40% Japan Performance relative to the MSCI ACWI over the next 12 months (rhs) 3 30% 2 20% 1 10% 0 0% -1 -10% -2 -20% -3 -30% -4 -40% -5 1996 Barclays Equity Strategy 1998 2000 2002 2004 2006 Source: Barclays Research. 3 1.9 0.0 0.1 1..5 Japan/World: EV/EBITDA 1.8 0.6 1995 1997 1999 2001 2003 2005 Source: Barclays Research.4 1.2 1.7 Barclays Equity Strategy 0.Japan relative to World ex-Japan non-financial EV/EBITDA multiple Again near cheapest levels seen since 1994 1. DataStream 2007 2009 2011 2013 2015 BACK TO CONTENTS 62 December 15 . DataStream.8 0.00 -10.8 0.6 -20.00 0.00 40. DataStream 2009 2011 2013 2015 1.7 0.0 0.1 1. MSCI 63 BACK TO CONTENTS December 15 .00 30.1 1.00 20.00 2005 2007 Source: Barclays Research.0041x + 0.9 0.7 Barclays Equity Strategy 0.0 0.8106 R² = 0. EV/EBITDA ratio 1.Japanese vs US EV/EBITDA Against forward one-year relative market returns from 2003 Non-financial EV/EBITDA multiple Ratio Japan v US non-fin.1 y = -0.7 Barclays Equity Strategy 0.00 10.2 Relative Japan / US EV/EBITDA Multiple 1.9 0.6 2003 -30.2458 1.9 0.00 One year ahead relative Japan /US $ Return Source: Barclays Research.0 1.8 0. 0% -2.0% Barclays Equity Strategy -6.0% 0. DataStream BACK TO CONTENTS 64 December 15 .0% 2.0% 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Barclays Research.Foreigners have been selling Japanese stocks Our Overweight position appears less consensual 6.0% -4.0% Buying from Foreigners (3m annualised. % market cap) 4. in our view The risk premium is very high relative to developed markets Catalyst would be a realisation that growth is not approaching a drop-off 65 December 15 . CONTENTS Overweight Emerging Markets Extremely negative sentiment supports a contrarian perspective. Investors have been selling EM equities aggressively versus DM Sentiment this negative has typically seen EM outperform over the next 6 months 6 -60% EM . rhs) 4 -40% 2 -20% 0 0% -2 20% -4 40% Barclays Equity Strategy -6 2003 60% 2004 2005 2006 2007 2008 2009 2010 Source: EPFR.DM flows % AUM (1yr z score) EM-DM 6 month fwd $ performance (inverted. 2011 2012 2013 2014 2015 BACK TO CONTENTS 66 December 15 . Barclays Research. DataStream. that has meant they have subsequently outperformed 6 Yield Gap to MSCI ACWI: EM EM Performance relative to the MSCI ACWI over the next 12 months (rhs) 60% 5 4 40% 3 20% 2 1 0% 0 -20% -1 -2 -40% -3 Barclays Equity Strategy -4 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Barclays Research.EM equities now offer a higher risk premium than DM In the past. MSCI *Real yield gap defined as the difference between equity capitalisation weighted 10-year sovereign yield and contemporaneous inflation **MSCI Emerging Markets index total return less MSCI Developed Markets total return one year ahead 67 -60% BACK TO CONTENTS December 15 . Market Cap. DataStream. %Y/Y) MSCI EM: Trailing earnings growth (rhs) 60 90 40 60 20 30 0 0 -20 -30 Barclays Equity Strategy -40 1997 -60 1999 2001 2003 2005 2007 Source: Barclays Research. MSCI 2009 2011 2013 2015 BACK TO CONTENTS 68 December 15 .We are assuming an improvement in EM export growth EM listed company earnings growth has tracked EM exports downwards 80 120 Exports from EM Countries (Wgtd by Eq. %Y/Y) 90 Developed Country Imports (% y-y. RHS) 60 60 40 30 20 0 0 -30 -20 Barclays Equity Strategy -40 1997 -60 1999 2001 2003 2005 2007 Source: Barclays Research. MSCI 2009 2011 2013 2015 BACK TO CONTENTS 69 December 15 . Market Cap. DataStream.Which is basically a function of Developed Market demand… A soft patch in the global economy has hampered EM exports… 80 Exports from EM Countries (Wgtd by Eq. People’s Bank of China 2012 2013 2014 2015 2016 BACK TO CONTENTS 70 December 15 . DataStream. rhs) 20 30 25 20 15 15 10 10 5 5 0 0 -5 Barclays Equity Strategy -5 2005 -10 2006 2007 2008 2009 2010 2011 Source: Barclays Research. 3m lead.The Li Keqiang Index suggests a deceleration in China Although money supply growth suggests an improvement going forward 30 40 Li Keqiang Index (lhs) 35 25 Real M1 Money Supply Growth (3mma. Bloomberg. Tianjin. Ningbo.0 0.70 MEDIUM &LARGE CITIES) 1.0 -0. Shanghai.BACK 71 TO CONTENTS December 15 . CREIS Note: First-tier cities include Beijing.5 0. Baotou.Property prices increasing in China’s leading cities Improvement in the property market since mid-2014 2. second-tier cities include Changsha. 70 MEDIUM & LARGE CITIES) NADJ 1.0 CH NEW HOUSE PRICES (%MOM. Guangzhou and Shenzhen.5 Barclays Equity Strategy -2.0 -1. Chengdu and Chongqing.5 CH SECOND RESIDENTIAL BLDGS PRICES(%MOM.0 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Source: Barclays Research.5 -1. Xi’an. Property sales have also picked up recently. smoothed) China Residential Floorspace Started (smoothed) 100% 80% 60% 40% 20% 0% -20% Barclays Equity Strategy -40% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Barclays Research. DataStream BACK TO CONTENTS 72 December 15 . which has… …typically led to a pickup in new construction and commodity demand 120% China Residential Floorspace Sold (6m lead. China housing market appears to be in recovery Floor space sold has also had a 6-month lead on Iron Ore prices 120% 200 China Residential Floorspace Sold (6m lead. %y/y) 80% 120 80 40% 40 0 0% -40 -40% 2007 Barclays EquityEquity Strategy Barclays Strategy -80 2008 2009 2010 2011 2012 Source: Barclays Research. smoothed) 160 Iron prices (rhs. DataStream 2013 2014 2015 2016 BACK TO CONTENTS 73 December 15 . Chinese consumption has also been stable recently Retail sales (ex-petrol) growing at 20% of late 35% Retail Sales (Total Ex Petrol) 6m avg 30% 25% 20% 15% 10% Barclays Equity Strategy 5% 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Barclays Research. DataStream. MSCI 2009 2010 2011 2012 2013 2014 2015 BACK TO CONTENTS 74 December 15 . Real Average EM/U$ . DataStream.The risk is a further decline in EM Currencies Although now EM currencies are already back to the lows reached in 2009 and 2002 – inflation-adjusted.Nominal Average 110 100 90 80 70 60 50 Barclays Equity Strategy Source: Barclays Research. MSCI 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 40 BACK TO CONTENTS 75 December 15 . equity-weighted EM FX is also below its average 120 EM/U$ . Rising US yields could also be another risk to the call Although prior to the Taper Tantrum. 12m change) 60% 2 40% 1 20% 0 0% -1 -20% -2 -40% Barclays Equity Strategy -60% 1993 -3 1995 1997 1999 2001 2003 Source: Barclays Research. DataStream. MSCI 2005 2007 2009 2011 2013 2015 BACK TO CONTENTS 76 December 15 . EM outperformed when US yields increased 80% 3 EM/ MSCI World (%y/y) US 10y yield (rhs. BACK TO CONTENTS 77 December 15 . DataStream. in our view 30% Price/book discount vs history since 2003 20% 10% 0% -10% -20% -30% -40% -50% Barclays Equity Strategy -60% Source: Barclays Research.Not all EM countries are similarly priced EMEA and Asia look particularly attractive. MSCI. Chinese stocks are back at a discount H shares particularly low on PE 2.0 1.2 1.6 1.4 1.8 0.8 1.4 2003 2004 2005 2006 2007 2008 2009 Source: Barclays Research.4 MSCI China/ MSCI AC World: 12m fwd PE 2.6 Barclays Equity Strategy 0.After a roller coaster ride.0 0.2 Shanghai Comp/MSCI AC World: 12m fwd PE 2. DataStream. MSCI 2010 2011 2012 2013 2014 2015 BACK TO CONTENTS 78 December 15 . 6 1.8 1.Chinese stocks also now looking attractive relative to HK Relative Price/Book also near decade lows 2.0 2001 2002 2003 2004 2005 2006 2007 2008 Source: Barclays Research.2 China/HK: Price/Book 2.2 Barclays Equity Strategy 1. MSCI 2009 2010 2011 2012 2013 2014 2015 BACK TO CONTENTS 79 December 15 . DataStream.4 1.0 1. C&EE should benefit from recovery in developed Europe Polish earnings have been linked to developed European growth MSCI Poland: Earnings growth (%y/y) 80 40 EU Business Confidence (%y/y. rhs) 30 60 20 40 10 20 0 0 -10 -20 -20 -40 -30 Barclays Equity Strategy -60 2001 -40 2003 2005 2007 2009 Source: Barclays Research. lead by 6m. MSCI 2011 2013 2015 BACK TO CONTENTS 80 December 15 . DataStream. history (since 1995) 10% 0% -10% -20% -30% -40% -50% -60% Barclays Equity Strategy -70% Source: Barclays Research. MSCI BACK TO CONTENTS 81 December 15 . DataStream.EM “cyclical” sectors look cheaply priced Sector valuations vary across EM with “defensive” sectors looking expensive 30% 20% Price/book discount vs. MSCI 2011 2013 2015 BACK TO CONTENTS 82 December 15 . both relative to the wider EM universe and also Banks in the developed markets Ratio EM Banks Rel. Banks EM Banks Rel.5 2001 2003 2005 2007 2009 Source: Barclays Research. Market 1.9 0.7 1. To EM. To Dev.7 Barclays Equity Strategy 0.Emerging market banks’ relative valuations: PE EM Banks look priced especially low.3 1.1 0.5 1. DataStream. CONTENTS US Equities: Further through the cycle US valuations are higher than elsewhere Margins have already reached a cyclical high. and revenue growth is now necessary Fed policy support is weakening and the dollar is strengthening 83 December 15 . 9 Barclays Equity Strategy 0.4 NBER Recession US Leading/Coincident Indicator 1.1 1.3 1.8 1959 1963 1967 1971 1975 1979 1983 1987 Source: Barclays Research. DataStream.0 0.Our favourite US indicator is still firmly non-recessionary Since 1959.2 1. Conference Board 1991 1995 1999 2003 2007 2011 2015 BACK TO CONTENTS 84 December 15 . a rolling over of this indicator has been a good predictor of recession 1. While US equities are not cheap. they aren't in a bubble either Not as expensive on Shiller PE when calculated using NIPA earnings CAPE Multiple 50 S&P CAPE NIPA CAPE Average S&P CAPE Average NIPA CAPE 45 40 35 30 25 20 15 10 5 Barclays Equity Strategy 0 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 Source: Barclays Research. S&P. NIPA BACK TO CONTENTS 85 December 15 . MSCI. S&P. NIPA.500 1. NIPA is on historical cost basis 86 2000 2005 2010 2015 BACK TO CONTENTS December 15 .000 1. S&P reported earnings.500 S&P 3.000 500 0 1970 Barclays Equity Strategy 1975 1980 1985 1990 1995 Source: Barclays Research.500 MSCI 2.This is because S&P profits have diverged from NIPA profits Perhaps due to a change in accounting regulations Q1 1970 = 100 3.000 NIPA 2. 5 1.1 1.2 1.7 Barclays Equity Strategy 0.3 1. NIPA 2000 2005 2010 2015 BACK TO CONTENTS 87 December 15 .9 0.6 US/ACWI: Price/Book 1.4 1.7 US/DM: Price/Book 1.6 1975 1980 1985 1990 1995 Source: Barclays Research.However. S&P. the US is more expensive than international equities Relative Price/Book is now very high 1.0 0.8 0. S&P. NIPA 2006 2008 2010 2012 2014 BACK TO CONTENTS 88 December 15 . in our view 25% US/ACWI: 12m fwd EPS (% y/y) 20% US/ACWI: Relative performance (% y/y) 15% 10% 5% 0% -5% -10% -15% Barclays Equity Strategy -20% 1994 1996 1998 2000 2002 2004 Source: Barclays Research.The earnings growth advantage the US enjoyed appears to be turning Better earnings growth now in Japan and Continental Europe. IBES. DataStream. MSCI 2007 2009 2011 2013 2015 BACK TO CONTENTS 89 December 15 .US Analyst sentiment 51% of US stock recommendations are a buy 80 Percentage of Buy Recommedations from Analysts 75 Tech Bubble 70 65 Hopes for U shaped Recovery 60 Credit Bubble 55 50 EM Crisis Today 45 Bottom of Financial Crisis Bottom of Tech Selloff 40 Barclays Equity Strategy 35 1993 1995 1997 1999 2001 2003 2005 Source: Barclays Research. Ex.US corporate cap ex looks solid Survey data indicate robust cap ex plans Survey Balance %YoY US Philadelphia Fed Survey Cap. DataStream 2011 2013 2015 -20 2017 BACK TO CONTENTS 90 December 15 . Plans (2 qtr lead) 35 Latest datapoint for Nov-15 US Non-Residential Private Fixed Investment (rhs) 30 25 20 15 10 5 15 0 10 5 -5 0 -10 -5 -10 -15 -15 -20 1999 Barclays Equity Strategy 2001 2003 2005 2007 2009 Source: Barclays Research. 6 8 0. Yield % 1.0 5 -0.4 3 -0. 0. we believe the recent rise in stock-bond correlation will prove to be temporary Correlation Coeff.4 7 0.8 9 Barclays US Treasury Index Yield (rhs) 0.0 10 26-week Stock/Bond Return Correl.0 1991 Barclays Equity Strategy 1993 1995 1997 1999 2001 2003 Source: Barclays Research.2 4 -0.2 6 0. DataStream Note: Treasury yields calculated as rolling 26 week correlation of returns 2005 2007 2009 2011 2013 0 2015 BACK TO CONTENTS 91 December 15 .We would not fear a rate hike from the Fed As with the taper tantrum.8 1 -1.6 2 -0. CONTENTS Style biases The recent outperformance of value stocks could continue We believe the premium paid for quality is too high. this could start to be unwound 92 December 15 . IBES. ”Quality” is defined as the performance of the top quartile of MSCI Europe index ranked according to ROE. DataStream. Worldscope. BACK 93 TO CONTENTS December 15 . *We show the median 12 month forward PE for the top quartile of “quality” stocks in MSCI Europe divided by the median PE for the lowest quartile of European “quality” stocks. MSCI. rebalanced monthly.Europe’s enduring premium* for “quality” The premium attached to high quality stocks in Europe is extremely high Barclays Equity Strategy Barclays Equity Strategy Source: Barclays Research. net debt/equity and earnings variability. quality trades on a discount Ratio Europe ex-UK UK US 1. DataStream. Note: Ratio is for the median PE of highest quality versus lowest quality quartiles in respective MSCI indices. while in the US. 94 2015 BACK TO CONTENTS December 15 .6 1988 1991 1994 1997 2000 2003 2006 2009 2012 Source: Barclays Research. MSCI. rebalanced monthly. IBES. Worldscope.0 0. net debt/equity and earnings variability. ”Quality” is defined as the performance of the top quartile of MSCI Europe index ranked according to ROE.2 1.6 1.8 Barclays Equity Strategy 0.The premium for quality is highest in Continental Europe The premium for quality in Europe ex-UK is much higher than the UK.4 1.8 1. 5 0.1 0. rebalanced monthly.2 1988 0 1991 1994 1997 2000 2003 2006 2009 2012 2015 Source: Barclays Research. trailing price/book and trailing dividend yield. MSCI.3 Barclays Equity Strategy 0.3 0.7 0. Worldscope Note: *”Value” defined according to a ranking of stocks in MSCI Europe according to 12 month forward PE.2 0. We show the median PE and PB for the best value quartile compared with the most expensive quartile. DataStream. IBES.4 0.6 0. BACK TO CONTENTS 95 December 15 .How cheap are “value”* stocks? European “Value” stocks do look cheaply priced on P/Book Ratio PE discount for 'value' Ratio PB discount for 'value' (RHS) 0.4 0. 2 1.High growth stocks trade on the same multiple as those with mediocre growth Investors seem unwilling to pay for high growth.4 Average 1. Source: Barclays Research 96 2004 2006 2008 2010 2012 2014 BACK TO CONTENTS December 15 .0 0. long-term and the internal growth rate.1 1.3 1.9 1988 Barclays Equity Strategy Barclays Equity Strategy 1990 1992 1994 1996 1998 2000 2002 Note: Growth defined by 3-year consensus. but very willing to pay for safety Ratio Multiple for 1st quartile vs 2nd quartile growth stocks 1. 0 80 3. 2009 2010 2011 2012 2013 2014 2015 BACK TO CONTENTS 97 December 15 .0 2002 2003 2004 2005 2006 2007 2008 Source: Barclays Research. DataStream. Value should start to outperform 105 6.5 Barclays Equity Strategy 55 2001 1.0 70 2.0 60 1.5 US 10y yields (rhs) 95 5.5 85 4.5 65 2.0 Global: Value vs Quality 100 5.0 90 4.5 75 3. MSCI. Quality and US bond yields If yields increase.Global Value vs. 0 3.0 -3.0 Barclays Equity Strategy -4. DataStream.0 US Value/Growth CAPE (z-score) Europe ex UK Value/Growth CAPE (z-score) UK Value/Growth CAPE (z-score) 2.0 0.0 1985 1987 1989 1991 1993 1995 1997 1999 2001 Source: Barclays Research.Value stocks look attractive vs growth stocks on the CAPE The cheapness of value stocks is particularly startling in the UK and Europe 4.0 -2. MSCI Note: Z-score calculated over history since 1985 2003 2005 2007 2009 2011 2013 2015 BACK TO CONTENTS 98 December 15 .0 -1.0 World Value/Growth CAPE (z-score) 1. IBES.“Low quality” vs “high quality” performance and real money growth Stronger month growth should encourage a rotation away from high quality stocks in Europe %y-y % y-y Euro Area real M1 growth (6m lead) 16 30 'low quality' v 'high quality' performance (RHS) 14 20 12 10 10 8 0 6 4 -10 2 -20 0 -2 -30 -4 Barclays Equity Strategy -6 1996 -40 1998 2000 2002 2004 2006 Source: Barclays Research. MSCI. Note: Chart shows returns for bottom versus top quality quartiles in MSCI Europe ex-UK 2008 2010 2012 2014 2016 BACK TO CONTENTS 99 December 15 . DataStream. Worldscope. 5 90 1.0 80 0. Datastream. pre-March 2000 US. post-March 2000 Europe 2003 2006 2009 2012 2015 BACK TO CONTENTS 100 December 15 .0 1.5 3.0 130 Relative performance of "quality"* 4.Equity investors have been slow to respond to credit “Quality” should underperform further in response to tighter credit spreads Jan 1982 = 100 % point spread 140 5.0 120 3.5 100 2.5 Barclays Equity Strategy 70 1982 0. Moody’s * Relative performance of MSCI European quality index versus MSCI European value ** BAA-AAA corporate credit spread. MSCI.0 1985 1988 1991 1994 1997 2000 Source: Barclays Research.5 Credit spread** (rhs) 4.0 110 2. Worldscope Note: *Graphic shows the degree to which each sector is either over.(darker blue) or under-represented (paler) in the top quartile of Pan-European value stocks. 101 BACK TO CONTENTS December 15 .Where are Europe’s value stocks*? European sectors that are over-/under-represented over time in the value market Source: Barclays Research. DataStream. trailing PB. Value is defined by forward PE. MSCI. and trailing dividend yield. IBES. IBES. MSCI.Where are Europe’s high quality stocks*? European sectors that are over-/under-represented over time in the quality market Source: Barclays Research. Quality is defined by ROE. DataStream. 102 BACK TO CONTENTS December 15 . Worldscope. net debt / equity and earnings variability. Note: *Graphic shows the degree to which each sector is either over.(darker blue) or under-represented (paler) in the top quartile of Pan-European quality stocks. Staples Health Care Financials Technology Telecoms Utilities Source: Barclays Research BACK TO CONTENTS 103 December 15 .Where is the growth? Continental Europe Europe ex UK Growth High 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 ## Energy Materials Industrials C. Disc C. we prefer Domestics to Exporters 104 December 15 . in our view Higher yields should favour Financials Within Europe. CONTENTS Sector Strategy Prefer cyclicals to defensives The price paid for safety is too high. 8% Energy 11.5% Materials 7.1% Industrials 16.3% 10.7% 2.2% Financials 31.8% Total 100% 100% Sector C.3% 3.1% -8.0% 1.1% 12.5% 4.9% -2.9% 12.8% Telecoms 2.2% -9.9% 21. DataStream. Industrials.7% -1. Materials and Energy Recommended Weighting Benchmark Weighting Gap 10. BACK TO CONTENTS 105 December 15 .2% Utilities 1. MSCI. Discretionary C.9% Information Technology 13.1% 14.5% 3.6% -1.9% 6.1% -1.Recommended Global Sector Weightings Overweight Financials.4% 10.5% 10.8% 5.5% 5. Staples Health Care Source: Barclays Research.5% 3. DataStream. Defensives: Consumer Staples. 106 2014 2016 BACK TO CONTENTS December 15 . Healthcare. Consumer Discretionary. Utilities.Cyclicals underperformance has been severe Investors have emphatically embraced the no-growth view 110 Global Cyclicals/Defensives* (Total Return) Global Business Confidence (rebased) 100 90 80 70 60 Barclays Equity Strategy 50 1998 2000 2002 2004 2006 2008 2010 2012 Source: Barclays Research. Cyclicals: Materials. Financials. MSCI *MSCI ACWI M1 sectors. Industrials. IT and Financials. CESI. Healthcare. Note: We use the average of the Europe. Consumer Discretionary. DataStream.Cyclicals have underperformed… …despite a pick-up in Global Economic Surprises 105 100 MSCI Europe: Cyclicals (incl financials) / Defensives (Performance) 80 Global Economic Data Surprises (rhs) 100 60 95 40 20 90 0 85 -20 -40 80 -60 75 -80 Barclays Equity Strategy 70 2010 -100 2011 2012 2013 2014 Source: Barclays Research. Utilities and Telecoms. G10 and EM data surprise indices. 107 2015 BACK TO CONTENTS December 15 . Cyclicals = Industrials. Materials. Defensives = Staples. Materials. Utilities and Telecoms.3 -0. Sell Defensives -1. Note: We use the average of the Europe. G10 and EM data surprise indices. CESI.5 0.0 2009 Barclays Equity Strategy 2010 2011 2012 2013 Source: Barclays Research.8 0. Buy Defensives 1. DataStream.3 0.0 -0. Healthcare. 108 2014 2015 BACK TO CONTENTS December 15 . Defensives = Staples. Defensives (Contrarian Indicator) Sell Cyclicals.8 Buy Cyclicals. IT and Financials.Sentiment towards cyclicals has turned recently Fund flow is at a 1 standard deviation low versus history Flows to European Cyclicals vs.0 0. Consumer Discretionary. Cyclicals = Industrials.5 -0. 8 0. the call is again on whether the cycle is over Cyclical sector valuations near prior bull market corrections 1.5 1996 1998 2000 2002 2004 2006 Source: Barclays Research.6 Financial Crisis Tech Crisis Barclays Equity Strategy 0. 2008 2010 2012 2014 2016 BACK TO CONTENTS 109 December 15 .7 Fed Hike EM Crisis US Growth Scare Euro Debt Crisis Today 0.1 European Cyclicals/ Defensives: Price/Book Average 1.0 0.Sectorally. IBES.9 0. DataStream. Bond proxy sectors and yield-plays have performed well Quality has performed well against value 170 7 Performance of Low vs. High Duration Sectors Value vs. Quality 150 6 US 10y yield (rhs) 130 5 110 4 90 3 70 2 Barclays Equity Strategy 50 2003 1 2004 2005 2006 2007 2008 2009 Source: Barclays Research. DataStream. MSCI 2010 2011 2012 2013 2014 2015 BACK TO CONTENTS 110 December 15 . If yields edge higher. Healthcare are most bond-like. DataStream. sectors with lower duration should do better Staples . while banks have least duration 60% Correlation with bond returns (since 2010) 40% 20% 0% -20% -40% FD/BEV/TOB PH/BIO L SCI H/C EQ/SVS H/H PERS PRD REAL ESTATE T/CM SVS FD RETAIL MEDIA CONS SVS S/W & SVS RETAILING UTILITIES ENERGY CONS DUR TRANSPT SEMIS TECH HRDW CAP GDS INSURANCE MATERIALS AUTOS DIV FIN BANKS Source: Barclays Research. MSCI COML/PROF SVS Barclays Equity Strategy -60% BACK TO CONTENTS 111 December 15 . 3 Relative EPS Revisions: Domestic vs.0 -0.2 Barclays Equity Strategy -0. DataStream 2010 2011 2012 2013 2014 2015 BACK TO CONTENTS 112 December 15 .Domestics seeing better earnings revisions than exporters Domestically exposed stocks look relatively cheaply priced 0.1 -0.1 0. Exporters 0.2 10-week average 0.3 2003 2004 2005 2006 2007 2008 2009 Source: Barclays Research. DataStream 2011 2013 2015 BACK TO CONTENTS 113 December 15 .0 Average 0.4 2003 2005 2007 2009 Source: Barclays Research.Yet they trade at a large discount on Price/Book Domestically exposed stocks look relatively cheaply priced 1.6 0.9 0.1 Domestics/Exporters: Relative Price/Book 1.5 54% discount Barclays Equity Strategy 0.7 0.8 0. Global real money growth is supportive of banks The inflation-adjusted pace of money growth has had a 9-month lead on the performance of the Global Banking sector % year-on-year Global Real Money Growth (lagged 9 months. % y-y) %year-on-year 15 100 World Banks Sector Return (RHS)* 10 50 5 0 0 -50 -5 Barclays Equity Strategy -10 1974 -100 1977 1980 1983 1986 1989 1992 1995 Source: Barclays Research. DataStream 1998 2001 2004 2007 2010 2013 BACK TO CONTENTS 114 December 15 . 5 80 2. MSCI 2011 2013 2015 BACK TO CONTENTS 115 December 15 .5 Barclays Equity Strategy 40 2003 1.0 60 1.5 4.0 140 4. DataStream.5 100 3.5 160 US 10 year yield (rhs) 5.0 120 3. we could become more positive on Banks 180 6.European Banks and the bond yield If yields continue to rise.0 Performance of European Banks relative to MSCI Europe 5.0 2005 2007 2009 Source: Barclays Research.0 2. RHS) 12 75 10 60 8 45 6 30 4 15 2 0 0 -15 Barclays Equity Strategy -2 2003 -30 2004 2005 2006 2007 2008 2009 2010 2011 Source. IBES Note: We look at the average of Consumer. Barclays Research. Housing and Corporate Credit Demand sections of the lending survey 116 2012 2013 2014 2015 2016 BACK TO CONTENTS December 15 .European Bank EPS and Lending to Hhlds + NFCs The recovery in Bank EPS should accelerate over the next 6 months Euro Bank Trailing EPS 14 90 Loans to Households + Non Fin Corporates (6m lead. €bn. IBES BACK TO CONTENTS 117 December 15 .Euro area bank performance now diverging from earnings Earnings estimates are improving relative to the market Jan 1996 = 100 Banks/ Europe (total returns) 180 Banks/ Europe (Fwd Earnings) 160 Banks/ Europe (Fwd EPS) 140 120 100 80 60 Barclays Equity Strategy 40 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source. Barclays Research. Euro area bank equity issuance has been declining Euro area banks have been a major contributor to the rise in equity issuance Eur bn. Barclays Research. 12 month rolling sum 70 60 50 Eurozone Banks: Fresh equity issued (12mth rolling sum) 40 30 20 10 0 -10 1991 Barclays Equity Strategy 1993 1995 1997 1999 2001 2003 Source. ECB 2005 2007 2009 2011 2013 2015 BACK TO CONTENTS 118 December 15 . 7 Fwd Yield relative Ratio .2705 0.9 0..6 Barclays Equity Strategy 0. IBES MSCI. banks look cheap European Banks fwd.Banks looking attractive relative to the market on PE Relative to history. 119 40 60 BACK TO CONTENTS December 15 . -40 -20 0 20 12 month forward relative return Source: Barclays Research.7 Barclays Equity Strategy -60 0. PE Rel. IBES.5 0.7 1. DataStream.1 2.9 1.9 1.1 Current ratio 1..8 1. DataStream. MSCI. 1.1 0.5 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Barclays Research.and fwd PE has been a useful guide R² = 0.3 0.0 1. DataStream. rhs) Insurance/Mkt: Book Value 70 115 60 110 55 500 450 65 400 50 105 60 45 350 100 40 55 300 95 35 50 250 90 45 30 85 25 80 20 2002 200 Barclays Equity Strategy 40 2002 2004 2006 2008 2010 Source: Barclays Research. IBES MSCI. MSCI. DataStream. 2012 Barclays Equity Strategy 2014 150 2004 2006 2008 2010 Source: Barclays Research. IBES. 120 2012 2014 BACK TO CONTENTS December 15 .Insurance should continue outperforming Book value trend in key 80 Asset markets have driven BVPS 125 70 Insurance/Mkt: Performance 550 Insurance Book Value per share 120 75 65 50-50 Bond + Stock Mkt Performance (3m lead. DataStream. German Federal Statistics Office 2012 2013 2014 2015 BACK TO CONTENTS 121 December 15 .Underlying strength in the auto market New car prices rate of increase remains near 0% while used cars are around 4% 6% Used Car Prices New Car Prices 4% 2% 0% -2% -4% Barclays Equity Strategy -6% 2006 2007 2008 2009 2010 2011 Source: Barclays Research. MSCI. OECD.0 103 Consumer Discretionary (Price/Book) OECD + 6NME Consumer Confidence (rhs) 3.5 98 1.0 99 1.5 102 3.5 0. DataStream.5 100 2.0 1980 Barclays Equity Strategy 1983 1986 1989 1992 1995 1998 Source: Barclays Research. 2001 2004 2007 2010 96 2013 BACK TO CONTENTS 122 December 15 .0 97 0.0 101 2.Globally Consumer Discretionary valuations and consumer confidence look to be peaking Rising rates have typically seen discretionary underperform 4. MSCI 2006 2009 2012 2015 BACK TO CONTENTS 123 December 15 . Volumes are improving European car sales have been growing for a year and should continue to expand 140 130 10 EU 27 Passenger Car Registration (3m avg) 5 EU 27 Consumer Confidence (rhs) 0 120 -5 110 -10 100 -15 -20 90 -25 80 -30 Barclays Equity Strategy 70 1988 -35 1991 1994 1997 2000 2003 Source: Barclays Research.Within discretionary. we only like the Autos here. DataStream. 5% 30% 2.0% -0.0% 10% 0.5% -10% -1. MSCI 2011 2013 2015 BACK TO CONTENTS 124 December 15 . rhs) -2.0% 20% 1.Overweight Autos: Pricing is improving Unlike the disinflation across the Euro Area.5% Auto sector revenue growth (lagged 1 year.0% 2001 Barclays Equity Strategy -30% 2003 2005 2007 2009 Source: Barclays Research.5% 0% 0. car prices are rising 2.5% 1. DataStream.0% -20% Auto price inflation (%y/y) -1. DataStream.Global Materials discount weaker confidence Comparing valuation and global business confidence Basic Materials (Price/Book) 3.5 98 1.5 101 2.5 104 OECD + 6NME Manufacturing Confidence (rhs) 103 3.0 100 99 1.0 102 2.0 97 Barclays Equity Strategy 0. MSCI.5 1980 96 1983 1986 1989 1992 1995 1998 Source: Barclays Research. OECD 2001 2004 2007 2010 2013 BACK TO CONTENTS 125 December 15 . MSCI 2013 2014 30 2015 BACK TO CONTENTS 126 December 15 .Overweight Materials: Earnings estimates reflecting low Iron Ore prices Low prices already there in the estimates 90 MSCI Europe: Mining 12 fwd EPS ($) 230 Iron Ore (rhs) 80 70 180 60 50 130 40 30 80 20 10 0 2007 Barclays Equity Strategy 2008 2009 2010 2011 2012 Source: Barclays Research. DataStream. 0 10 1.5 1.0 25 MSCI ACWI Mining P/Book 3. MSCI 2007 2009 2011 2013 0 2015 BACK TO CONTENTS 127 December 15 .0 2.Mining: The PB ratio for the mining sector is near 2009 lows Reflective of Chinese IP.0 5 0.5 Industrial Production: Overall (3m avg) 20 3.5 15 2. which is currently also very low but could pickup 4.5 0. DataStream.0 1995 Barclays Equity Strategy 1997 1999 2001 2003 2005 Source: Barclays Research. DataStream BACK TO CONTENTS 128 December 15 .China housing market appears to be in recovery Floor space sold has also had a 6-month lead on Iron Ore prices Barclays Equity Strategy Barclays Equity Strategy Source: Barclays Research. DataStream.Overweight European Telecoms: Pricing power improving Should support revenue growth for the sector % year-on-year % year-on-year 3 15 1 10 -1 5 -3 0 -5 -5 Relative telecom inflation -7 -10 Relative Telecom sector revenue growth (rhs) Barclays Equity Strategy -9 2001 -15 2003 2005 2007 2009 Source: Barclays Research. MSCI 2011 2013 2015 BACK TO CONTENTS 129 December 15 . DataStream.Telecoms More cyclical post 2010 than before 130 Relative performance of Telecoms (total returns) 30 EU Services Confidence (rhs) 120 20 110 10 100 0 90 -10 80 -20 70 Barclays Equity Strategy 60 2003 -30 2004 2005 2006 2007 2008 2009 Source: Barclays Research. MSCI 2010 2011 2012 2013 2014 2015 BACK TO CONTENTS 130 December 15 . 7 Barclays Equity Strategy 0.3 1.8 0.1 1.0 0.2 1.Energy: Has enough of a discount been already priced in? The Energy sector is trading at a multi-decade discount on Price/Book 1. MSCI 2009 2011 2013 2015 BACK TO CONTENTS 131 December 15 .6 1997 1999 2001 2003 2005 2007 Source: Barclays Research.4 MSCI World Energy / MSCI World: Price/Book 1.9 Relative valuation of the global energy sector is below the levels seen in 1999 when oil prices reached US$10 a barrel 0. market over the next 18 months (rhs) 4 60% 3 40% 2 20% 1 0% 0 -20% -1 1973 Barclays Equity Strategy 1977 1981 1985 1989 1993 1997 Source: Barclays Research.3% higher than the market Historically such a wide gap has generally seen the sector outperform Energy-Market: Dividend Yield 5 80% Performance of Energy vs. MSCI 2001 2005 2009 -40% 2013 BACK TO CONTENTS 132 December 15 . DataStream.Energy dividend yield is 2. 4 1. DataStream.3 1. rhs.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Barclays Research.Industrials and Technology also now look interesting IFO suggests earnings for Industrials 120 30 MSCI Europe Industrials Earnings (%y/y) 100 80 Tech looks cheap 1. 133 BACK TO CONTENTS December 15 .8 Technology/Market: Rel 12m fwd PE 25 German IFO (%y/y. 2011 2014 -25 2017 Barclays Equity Strategy 1. 9m lead) 20 60 15 40 10 20 5 0 0 -20 -5 -40 -10 -60 -15 -80 -20 1.7 Avg since 2004 1. IBES MSCI.5 1. MSCI.2 1.6 1. DataStream. IBES.1 Barclays Equity Strategy -100 1996 1999 2002 2005 2008 Source: Barclays Research. Contribution of investment to economic growth has been low This has been the case particularly in the UK and EA GFCF % GDP US UK EA (rhs) GFCF % GDP 22% 24% 21% 23% 20% 22% 19% 21% 18% 20% 17% 19% 16% 18% 15% 14% 17% 13% 16% Barclays Equity Strategy 12% 1995 15% 1997 1999 2001 2003 2005 Source: Barclays Research. DataStream 2007 2009 2011 2013 2015 BACK TO CONTENTS 134 December 15 . DataStream. Note: For the UK. 2010 2015 BACK TO CONTENTS 135 December 15 . capacity utilisation derived from the results of the CBI survey.Capacity utilisation rates have picked up Space capacity is no longer sufficient to meet demand Capacity Utilization Rates (z-score) 3 US EA UK 2 1 0 -1 -2 -3 Barclays Equity Strategy -4 1990 1995 2000 2005 Source: Barclays Research. 4 6.6 10 7.Equipment owned by private enterprises in the US now very old This has typically seen capital expenditure pick up rapidly 8.6 -4 6.8 0 -2 6.4 8 6 7.0 16 US: Average Age of Fixed Assets: Private Equipment 14 7.0 2 6.2 4 7.2 1955 -6 Barclays Barclays Equity Equity Strategy Strategy 1960 1965 1970 1975 1980 1985 Source: Barclays Research. DataStream 1990 1995 2000 2005 -8 2010 BACK TO CONTENTS 136 December 15 .8 12 5 year growth in real GFCF (rhs) 7. Plans (2 qtr lead) -15 -15 -30 US Non-Residential Private Fixed Investment (rhs) -20 -20 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 -40 1990 Source: Barclays Research. DataStream. British Chamber of Commerce BACK 137 2015 TO CONTENTS December 15 . DataStream Barclays Equity Strategy 1995 2000 2005 2010 Source: Barclays Research.Ex.Capital spending intentions are recovery Capex plans of US Philly Fed Survey Balance 35 High UK investment intentions 50 %YoY 30 UK Manufacturing: Investment Intentions (BCC survey) Latest datapoint 15 for Nov-15 40 10 30 5 20 25 20 UK Services: Investment Intentions (BCC survey) 15 10 0 10 0 5 -5 0 Barclays Equity Strategy -5 -10 -10 -10 -20 US Philadelphia Fed Survey Cap. ECB 2010 2011 2012 2013 2014 2015 BACK TO CONTENTS 138 December 15 . firms are now borrowing for investment Based on results from the ECB’s Bank Lending Survey 30 ECB Lending Survey: Effect of Fixed Investment on Credit Demand 20 10 0 -10 -20 -30 -40 -50 -60 -70 -80 2003 Barclays Equity Strategy 2004 2005 2006 2007 2008 2009 Source: Barclays Research.In the EA. DataStream. DataStream. inverted) 2 130 120 3 110 4 100 90 5 80 Barclays Equity Strategy 70 2003 6 2004 2005 2006 2007 2008 2009 Source: Barclays Research.Underweight Staples: Rising yields should see them underperform Rising bond yields could see staples underperform 150 1 MSCI Europe Staples/Market 140 US 10 year yields (rhs. MSCI 2010 2011 2012 2013 2014 2015 BACK TO CONTENTS 139 December 15 . DataStream.Underweight Healthcare Rising bond yields could also negatively affect the performance of Healthcare 120 1 MSCI Europe Healthcare/Market 110 US 10 year yields (rhs. inverted) 2 100 3 90 4 80 5 70 Barclays Equity Strategy 60 2003 6 2004 2005 2006 2007 2008 2009 Source: Barclays Research. MSCI 2010 2011 2012 2013 2014 2015 BACK TO CONTENTS 140 December 15 . CONTENTS Recommended Portfolios 141 December 15 . security or instrument discussed herein and consult any independent advisors they BACK TO CONTENTS believe necessary. Source: Barclays Research 142 December 15 . Barclays recommends that investors independently evaluate each issuer. including details of our company-specific valuation methodology and risks. Data as of 15 Dec 2015. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the clients who receive it. please refer to http://publicresearch.com.barcap. The securities discussed herein may not be suitable for all investors.Barclays Global recommended portfolio For full disclosures on each covered company. com. security or instrument discussed herein and consult any independent advisors they BACK TO CONTENTS believe necessary. The securities discussed herein may not be suitable for all investors. Source: Barclays Research 143 December 15 .barcap. Barclays recommends that investors independently evaluate each issuer. Data as of 15 Dec 2015.Barclays Global recommended portfolio (continued) * fro m 8th No v 2013 For full disclosures on each covered company. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the clients who receive it. please refer to http://publicresearch. including details of our company-specific valuation methodology and risks. security or instrument discussed herein and consult any independent advisors they believe necessary. including details of our company-specific valuation methodology and risks.barcap.com. please refer to http://publicresearch. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the clients who receive it.Barclays European recommended portfolio Source: Barclays Research For full disclosures on each covered company. Barclays recommends that investors independently evaluate each issuer. Data as of 15 Dec 2015. The securities discussed herein may not be suitable for all investors. BACK TO CONTENTS 144 December 15 . BACK TO CONTENTS 145 December 15 . Barclays recommends that investors independently evaluate each issuer. security or instrument discussed herein and consult any independent advisors they believe necessary.barcap. please refer to http://publicresearch. Data as of 15 Dec 2015. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the clients who receive it. The securities discussed herein may not be suitable for all investors.Barclays European recommended portfolio (continued) * from 8th Nov 2013 Source: Barclays Research For full disclosures on each covered company.com. including details of our company-specific valuation methodology and risks. methodologies. fundamental analysis. 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