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Barclays turns bullish on European banks, downgrades utilities

Published 01/30/2023, 03:03 AM
Updated 01/30/2023, 04:16 AM
© Reuters. FILE PHOTO: A branch of Barclays Bank is seen, in London, Britain, February 23, 2022.  REUTERS/Peter Nicholls/File Photo
BARC
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(Reuters) -Barclays analysts on Monday upgraded Europe's banking sector, as it sees benefits of higher interest rates and healthy financials, but downgraded the utilities sector.

Analysts at the British investment bank, led by Emmanuel Cau, upgraded the European banking sector to "overweight" from "market weight" and downgraded the utilities sector to "underweight".

"Given the move in rates thus far, banks are enjoying positive earnings momentum," Barclays (LON:BARC) said.

"Most recently, performance has finally started to pick up to reflect this, but we think there could be more to go given higher-for-longer rates but lower-than-feared provisions."

The brokerage added that moves were part of its shift to cyclical exposure for European equities from a prior defensive position as it sees better macro conditions and the energy crisis slowing down this year.

© Reuters. FILE PHOTO: A branch of Barclays Bank is seen, in London, Britain, February 23, 2022.  REUTERS/Peter Nicholls/File Photo

"Banks are sensitive to both growth and rates, which we expect to be tailwinds this year. However, we must ‘pay’ for the upgrade, and we choose to do so by downgrading a defensive – Utilities," Cau said.

He added that benefits the utilities sector has been enjoying - like surging energy prices and falling interest rates etc - have reversed and they are less attractive to investors.

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