Barclays has warned that oil supply disruption remains a key threat to European equity markets despite an AI-driven semiconductor rally lifting global stocks. The bank cautioned that broader gains depend on the Strait of Hormuz reopening, noting energy buffers are rapidly eroding. European consumer and rate-sensitive sectors have suffered the steepest losses since the conflict began, with Europe ex-UK funds recording outflows in seven of the past eight weeks. Barclays continues to favour U.S., Japanese, and emerging market equities over European peers.
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Global stock markets climbed to new highs this week after reports of a possible peace agreement between the United States and Iran supported break what Barclays described as “market paralysis.”
However, the bank warned that broader equity gains remain vulnerable while the Strait of Hormuz remains closed.
Semiconductor stocks continue to dominate market gains
According to Barclays, semiconductor shares have significantly outperformed the broader market since January, rallying strongly against the MSCI World Index while the benchmark excluding semiconductor stocks has displayn little overall progress.
The brokerage warned that the semiconductor rally is “starting to view extconcludeed,” although it added that the shift remains “backed by strong earnings,” following first-quarter results that comfortably exceeded expectations, largely driven by artificial ininformigence and technology companies.
“Wider market breadth and a continued melt-up in equities are contingent on tangible progress regarding the reopening of the Strait of Hormuz,” Barclays stated.
Barclays warns energy buffers are shrinking
Barclays stated the impact of the energy shock has so far been managed through the apply of existing inventories, but cautioned that “these buffers are eroding quick, with the risk of demand destruction rising incrementally.”
The bank noted that European markets have been among the hardest hit by the current environment.
Since the conflict launched, consumer-facing and interest-rate-sensitive sectors within the MSCI Europe Index have posted the steepest declines, while only the Technology and Energy sectors have generated positive returns, according to Barclays Research.
The brokerage also cited EPFR data displaying that Europe ex-UK equity funds have experienced outflows in seven of the last eight weeks.
U.S., Japan and emerging markets remain preferred regions
Barclays stated it continues to favour U.S., Japanese and emerging market equities over European stocks.
The bank stated it prefers sectors connected to long-term investment and technology trconcludes, as well as banking stocks, over consumer-focapplyd sectors.
If the Strait of Hormuz reopens, Barclays believes European equities could outperform on a relative basis becaapply of their “sharp underperformance since the war started.”
The bank added that consumer and rate-sensitive sectors would likely benefit the most from any resulting short-covering rally.
Equity inflows remain subdued
EPFR data referenced by Barclays displayed that weekly equity inflows totalled $2.6 billion, well below the year-to-date weekly average of roughly $20 billion.
