Selloff in European Stocks is ‘Technical Correction’: BofA
(Bloomberg) -- New Year’s pull-back in European equities is technical correction where long positions looking for usual January rally are being flushed out of the system, rather than fundamental change of trend, BofA European equity strategists including James Barty and Ronan Carr write in note.
* BofA still structurally positive on European stocks
- Market offers “decent valuation, very good yield” vs other asset classes, while macro backdrop still improving
* “Right now we think markets are close to a near term low and would look to add risk into this weakness”
* Stay underweight China, commodities and expensive defensives
- Remain underweight basic resources: looking towards an end game of more equity raising
- Underweight autos: investors underestimating both China and VW risks
- Cautious on retail: fundamentals remain poor, valuations have yet to adjust
- Staples have an EM bias, and “simply too expensive”
* Overweight tech, industrials, media, healthcare
* Positive on banks, “where 2016 will be the acid test of whether the regulatory cycle will permit dividends. We think it will”