Societe Generale recommends waiting for new declines in share prices before positioning for a rebound, which may be triggered by new monetary stimulus or positive political developments in the euro zone, the bank says.
Four straight sessions of gains, fuelled by expectations of forthcoming policy action, have helped European shares more than recover the ground lost on Friday, when weak economic data sent stocks to a six-month low.
Soc Gen says equites likely face new losses in the near future, but warns a monetary policy intervention, progress towards a European banking union, a victory of moderate parties at elections in Greece and signs of economic recovery could trigger a rebound.
“We expect the downside in risk assets to continue to materialise in the coming weeks,” he bank says in a note. “But when and if one of our four triggers kick in...we would recommend positioning asset allocation strategies for a rebound.”
In this scenario, the bank highlights “high beta assets”, which tend to offer higher returns than the broader market during rallies and fall more sharply during corrections, such as bank equities and commodities.
British miner Kazakhmys offered the highest beta among stocks listed in the FTSEurofirst 300 index at 2.94, which means its returns would be nearly three times as high the ones offered by market if there is a rally.
Lenders Royal Bank of Scotland, Barclays and KBC offered betas of between 2.6 and 2.2, Thomson Reuters data shows.
Reuters messaging rm://email@example.com