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EUROPEAN STOCKS NEED LOWER OIL PRICES

European shares began 2026 outperforming U.S. equities, but that trend has reversed since the Iran war, as America powered ahead on strong earnings growth and AI-driven optimism.

Flows have backed that up, with U.S. shares attracting inflows for eight straight weeks and European shares seeing outflows for six consecutive weeks, the longest streak since February last year, according to the latest Bank of America Flow Show report.

But Barclays thinks there is a route for Europe to resume its outperformance.

"Europe outflows have gathered pace, as the energy shock is starting to hit activity," Barclays writes.

"However, positioning is cleaner now and if oil drops in the event of a peace deal, we see potential for Europe to reverse its recent underperformance versus the U.S."

They also believe EM - with the exception of tech-heavy Taiwan and South Korean markets - will likely benefit too, while Japanese inflows could pick up again if oil and rates worries abate.

(Samuel Indyk)

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