Barclays Global Strategy - Our Favourite Charts

Equity Research
Global & European Equity Strategy

Ian Scott
+44 20 313 47668
ian.c.scott@barclays.com
Barclays, UK
Dennis Jose, CFA

+44 20 313 43777
dennis.jose@barclays.com
Barclays, UK
Jason Hart
+44 20 313 47425
jason.hart@barclays.com
Barclays, UK
Sarah Grenham
+44 20 355 52609
sarah.grenham@barclays.com
Barclays, UK
Our Favourite Charts for 2016

December 2015
Aristeidis Ioannidis
+44 20 313 42364
aristeidis.ioannidis@barclays.com
Barclays, UK
Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be
aware that the firm may have a conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered/qualified as research analysts
with FINRA.
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES BEGINNING ON SLIDE 146.
Barclays Global & European Equity Strategy Team

Ian Scott is a Managing Director and
Head of Global and European Equity
Strategy. Ian joined Barclays in
August 2013, having held similar
positions at Lehman Brothers and
Nomura. Ian was voted First in
Institutional Investor Survey for
European Strategy in both 2004 and
2010. Ian has a B.A. and M.A. in
Economics from The University of
Warwick.
Dennis Jose
Ian Scott
Dennis Jose is a Director with the Global

and European Equity Strategy Team at
Barclays. Dennis has been with the team for
the past six years, prior to which he worked
in Credit Strategy and Algorithmic Trading
Strategy at Lehman Brothers. Dennis holds
an MBA from the Indian Institute of
Management, Calcutta, and a Masters cum
Bachelors degree in Chemical Engineering
from the Indian Institute of Technology,
Delhi. He is a CFA charterholder.
Jason Hart
Sarah Grenham
Aristeidis Ioannidis
Jason Hart is a Vice President with the Global

and European Equity Strategy Team at
Barclays. He joined the team in April 2014
prior to which he had worked on a range of
front office equity technology platforms at
companies including Jefferies, Fidelity
Worldwide Investments and Marshall Wace.
Jason holds a PhD in Computational
Chemistry from the University of Manchester.
Sarah Grenham has worked at

Barclays since 2011, and has
been a member of the Global &
European Equity Strategy team
and European Equity Product
Management Group since
February 2014. Sarah has a BA
in French and German from
Durham University.
Aristeidis Ioannidis is an Assistant Vice

President with the Global and European Equity
Strategy Research team. Before taking up his
current position in April 2015 he worked in
Portfolio Market Risk, and prior to that he
worked in the Structured Rates Risk and P&L
team. Aristeidis joined Barclays in 2007 after
graduating from London School of Economics
with an MSc in Accounting and Finance.
December 15
Key Aspects of our Strategy

Overweight Europe ex-UK, EM, Japan, Banks and Cyclicals
Global Equity Outlook: Market upside for Global Equities (p.4)
Overweight Continental European Equities (p.21)
Further through the cycle, earnings growth advantage over international markets turning
Key Style Recommendations (p.92)
Depressed valuation; Severely Negative sentiment; A stabilisation in Chinese economic data is key
Underweight US Equities (p.83)
Signs of corporate change; Low valuations discount cyclical peak
Overweight Emerging Market Equities (p.65)
Wage increases and higher rates should squeeze margins
Overweight Japanese Equities (p.52)
Discount to US and history; QE boosting domestic economy; earnings growth accelerating
Modest Underweight on UK Equities (p.44)
Sentiment at an extreme; valuations in line; growth fears overdone, in our view
Quality looks very expensive, Value looks attractive, High Growth also looks attractive, Fed hike supports Value
Overweight Banks, Cyclical Sectors and Value (p.104)
Cyclical performance near 2009 lows; Safety premium looks exaggerated; Banks appear heavily de-rated
December 15
CONTENTS
Global Equity Outlook

Sentiment at an extreme
Valuations in line
Growth fears overdone
December 15
Sentiment has yet to fully recover from the lows in August

Positioning and sentiment show lack of enthusiasm towards stocks
% long - short
% bulls - bears
Asset Managers' Net long Position
60%
50%
Survey Sentiment Measure (RHS)

40%
50%
30%
40%
20%
30%
10%
20%
0%
10%
-10%
Barclays Equity Strategy
0%
2010
-20%
2011
2012
2013
2014
2015
Source: Barclays Research, CFTC, DataStream, Investors Intelligence

Asset managers net position calculated as longs shorts in US S&P 500 mini contract as % of total positions. Survey Sentiment Measure refers to gap between %of bulls - % of bears in Investors
Intelligence Survey.
BACK TO CONTENTS
December 15
Sentiment recovery is still consistent with positive returns

The bull bear gap moves closely with the long short position adopted by
money managers in the S&P 500 mini contract
Global stock mkt returns over subsequent 6 mths
60
Stock market returns vs.Bulls - bears
50
Linear trend line
40
30
R = 0.4525
20
10
0
-10
-20
-30
-30
-20
-10
10
20
30
40
50
Bulls - bears
Source: Barclays Research, DataStream, Investors Intelligence, MSCI.
BACK TO CONTENTS
December 15
Non-resident equity investors have been selling equities

According to our calculations, non-resident investors sold an annualised 1.1% of
US, Japanese, Euro Area* and EM equities
5%
Cross Border Flows (3m annualised, % of market cap)
4%
3%
2%
1%
0%
-1%
-2%
Stock
Market
Crash
Gulf
War
ERM
Crisis
Peso
Crisis
Asian Russian
Crisis Crisis
Tech
Crash
Subprime
Sovereign
Debt Crisis
Taper Today
Tantrum
Lehman
Crash
-3%
-4%
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Source: Barclays Research, Bank of Japan, ECB, EPFR, MSCI, US Dept of Treasury
Note: Chart shows the net purchases of US, Japanese, and Euro Area equities by non-resident investors. We also add net purchases of EM mutual funds and ETFs. Latest data point is for October.
*With the October Euro Area figure proxied by the German data alone.
BACK TO CONTENTS
December 15
12-month cross border flows and subsequent returns

Past behaviour suggests that periods of heavy selling by non-resident investors
tend to be followed by above-average returns
4.0%
-60
Cross Border Flows (12m sum, % of market cap)

MSCI ACWI 12m fwd returns (rhs, inverted, %)
-40
3.0%
-20
2.0%
0
1.0%
20
0.0%
40
-1.0%
60
-2.0%
1987
80
1991
1995
1999
2003
Source: Barclays Research, Bank of Japan, ECB, EPFR, MSCI, US Dept of Treasury.
2007
2011
2015
BACK TO CONTENTS
December 15
Stock analysts also remain quite cautious

Analysts are not optimistic: % of buy ratings for stocks in ACWI
65
Percentage of buy recommedations from analysts

Tech Bubble
60
Credit
Bubble
55
U shaped
Recovery
50
45
Bottom of Tech
Selloff
EM Crisis
40
Bottom of Financial
Crisis
Today
35
1995
1997
1999
2001
2003
2005
Source: Barclays Research, DataStream, IBES, MSCI.
2007
2009
2011
2013
2015
BACK TO CONTENTS
December 15
Consensus earnings growth forecasts not 10-12% this time

Next years EPS growth forecast at 6.5% is the 2nd lowest since 1988
35
Consensus forecast for next year's earnings growth measured in December every year
30
Today
25
20
Not 10-12%
this time
15
10
5
0
1988
1991
1994
1997
2000
Source: Barclays Research, DataStream, MSCI .

Consensus is from IBES global aggregates for Weighted Year-Over-Year Growth In EPS Earnings
10
2003
2006
2009
2012
2015
BACK TO CONTENTS
December 15
Global CAPE below average at 18

Global CAPE at around 15% below its average level since 1980
45.00
40.00
Global CAPE
35.00
Average
30.00
25.00
20.00
15.00
10.00
5.00
0.00
1980
1985
1990
1995
2000
Source: Barclays Research, DataStream, MSCI
2005
2010
2015
BACK TO CONTENTS
11
December 15
18x CAPE should mean healthy forward returns

There has been a relatively robust fit with forward market performance
300%
Subsequent 5 year returns
250%
A CAPE less than 22 has been associated

with positive 5 year forward returns
200%
150%
100%
50%
0%
-50%
10
15
20
25
30
35
40
45
Global CAPE
Source: Barclays Research, DataStream, MSCI.
BACK TO CONTENTS
12
December 15
Other global valuations do not look expensive, in our view

Global PE multiple, in line with the longterm average
Price/book is in line with the

long-term average as well
40
4.5
Global price/book
Global PE
35
4.0
Average
Average
3.5
30
3.0
25
2.5
20
2.0
15
1.5
10
1.0
5
0.5

0
1970
1975
1980
1985
Source: Barclays Research, MSCI
1990
1995
2000
2005
2010

0.0
1975
2015
1980
1985
13
1990
1995
2000
2005
2010
2015
BACK TO CONTENTS
December 15
We estimate the market is priced for long-run nom. growth of 3%

Investors long-run growth expectations have come down since last year
Annual % growth
16
Long-term implied earnings growth
14
Global Nominal GDP growth - adv. Econ.
12
10
8
6
4
2
0
-2
-4
-6
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Source: Barclays Research, DataStream, IMF, IBES, MSCI

NB. Implied growth is the output of a residual income model in which the first three years of earnings are given by consensus estimates, then a fade over the next five years to long-run average
ROE. We also assume a constant risk premium of 5%.
BACK TO CONTENTS
14
December 15
Monetary growth is strong

Markets should be able to withstand a Fed rate hike
20
Global Real Money Growth (lagged 9 months, % y-y)
80
Global Equity Return (% y-y,RHS)
15
60
40
10
20
0
-20
0
-40
-5
1985
-60
1990
1995
2000
Source: Barclays Research, DataStream, MSCI, OECD.
2005
2010
2015
BACK TO CONTENTS
15
December 15
Global valuations and profitability vs. past hiking cycles

Stock are cheaper, ROEs are fine compared to the last 3 hiking cycles
Source: Barclays Research. MSCI
BACK TO CONTENTS
16
December 15
Global economic growth and earnings growth

Barclays economic forecasts are consistent with modest EPS growth in 2016
Global Real GDP growth (%y/y, lhs)
10
60
Barclays GDP Forecast

Global Consensus Earnings Growth (%y/y, rhs)
40
20
4
0
2
-20
0
-40
-2
-4
1989
-60
1992
1995
1998
2001
2004
Source; Barclays Research, DataStream, IBES, MSCI.
2007
2010
2013
2016
BACK TO CONTENTS
17
December 15
Global Earnings Growth Forecasts

We see the best earnings prospects coming in Continental Europe, UK and Japan
2013
2014
2015*
2016*
5.9%
7.7%
0.5%
4.0%
Europe Ex-UK II
-5.1%
9.2%
7.4%
12.0%
UK III
-2.8%
-1.6%
-11.7%
8.0%
Japan IV
72.7%
4.4%
19.0%
11.0%
Pacific ex-Japan V
-4.3%
5.8%
-8.9%
2.0%
1.6%
-8.4%
-1.3%
8.0%
1.4%
0.2%
0.2%
6.3%
US I
Emerging Markets
Global VII
VI

Notes: (1) S&P 500, (2) MSCI Europe ex-UK (EUR), (3) FTSE 100, (4) Topix, (5) MSCI Pacific ex-Japan ($), (6) MSCI Emerging Markets index, (7) MSCI All-Country World index
*2013 and 2014 numbers are actual growth numbers. 2015 numbers are bottom-up consensus. All forecasts are for earnings defined by IBES for respective indices.
BACK TO
18
CONTENTS
December 15
Global Index Targets

Our targets for the different indices are as follows

Notes: (1) S&P 500, (2) MSCI Europe ex-UK (EUR), (3) FTSE 100, (4) Topix, (5) MSCI Pacific ex-Japan ($), (6) MSCI Emerging Markets index, (7) MSCI All-Country World index
BACK TO CONTENTS
19
December 15
Recommended Regional Weightings

Our recommended regional weightings are as follows
Recommended
Weight
Benchmark
Weight
Gap
North America
39.1%
56.1%
-17.0%
Europe ex-UK
27.1%
15.6%
11.5%
4.2%
6.9%
-2.6%
14.1%
8.0%
6.1%
1.2%
3.7%
-2.5%
14.3%
9.7%
4.6%
Asia
9.0%
6.6%
2.4%
CEEMEA
3.0%
1.8%
1.2%
LATAM
2.3%
1.3%
1.0%
100.0%
100.0%
0.0%
UK
Japan
Pacific ex-Japan
Emerging Markets
of which:
Total
BACK TO CONTENTS
20
December 15
CONTENTS
Overweight Continental Europe

QE is boosting the domestic economy
European equities appear to be cheaply priced
Earnings growth is expected to accelerate in 2015
21
December 15
The key to the future is money growth, in our view

M1 money supply has led business confidence by 9 months
18
Eurozone M1 (%y/y, led by 6 months, lhs)
German IFO (%y/y, rhs)
25%
15
15%
12
5%
6
-5%
3
-15%
0
-3
1993
-25%
1995
1997
1999
2001
2003
2005
Source: Barclays Research, ECB
2007
2009
2011
2013
2015
BACK TO CONTENTS
22
December 15
Signs of life in the EA credit cycle

Loan demand is improving
30
Firms are borrowing to invest
3.4
Loans to Non Fin Corps (1-5years, yoy)

Loans to Households (1-5years, yoy)
ECB BLS: Loans or Credit Lines to Enterprises
25
3.2
20
3.0
15
2.8
10
2.6
2.4
-5
2.2
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
-10
2.0
2003
2005
2007
23
2009
2011
2013
2015
BACK TO CONTENTS
December 15
Consumption should continue to recover

Given the improvements seen in Consumer Confidence
8
5
6
-5
-15
-25
-2
EA Retail Sales Ex-Autos (SA, %y/y)
-35
-4
EA Consumer Confidence led by 6 months (rhs)
-6
1996
1998
2000
2002
2004
2006
Source: Barclays Research, DataStream
2008
2010
2012
2014
-45
2016
BACK TO CONTENTS
24
December 15
In the Euro Area, ECB QE is transmitting to money supply

the recent acceleration should support future returns
20
100
Eurozone Real M1 (6m lead, %y/y, lhs)
80
Continental European Stocks (%y/y, rhs)

15
60
10
40
20
5
0
0
-20
-40
-5
-60
-10
1999
-80
2001
2003
2005
2007
2009
2011
2013
2015
BACK TO CONTENTS
25
December 15
This outlook means bond yields may increase for the right reasons
M1 money supply suggests another c.1% move higher in yields
EA: M1 money supply growth (12m lead, lhs)

16
3
German 5yr yields (12m change, rhs)
14
2
12
1
10
8
-1
4
-2
2
0
1991
-3
1993
1995
1997
1999
2001
2003
Source: Barclays Research, OECD, MSCI
2005
2007
2009
2011
2013
2015
BACK TO CONTENTS
26
December 15
We forecast 3% revenue growth in Conti Europe in 2016

This compares to 2.7% growth from consensus
Actual
20
Model
Forecast with Flat FX
Consensus
15
10
5
0
-5
-10
-15
Q1
2003
Q1
2004
Q1
2005
Q1
2006
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2014
Q1
2015
Q1
2016
Q1
2017
Source: Barclays Research, MSCI , DataStream.

Utilising our economists projections for these variables, we arrive at a revenue growth forecast of 3.2% for 2016, which is slightly higher than the bottom-up consensus forecast 2.7% growth.
Details of model available on request
BACK TO CONTENTS
27
December 15
We forecast 12% earnings growth in Conti Europe in 2016

This compares to 7% growth from consensus
Source: Barclays Research, MSCI, DataStream

On modelling the earnings, we arrive at a growth rate of c. 12%, which is higher than the bottom-up consensus of c. 7% for 2016.
Details of model available on request
28
BACK TO CONTENTS
December 15
Consensus earnings growth forecasts not 10-12% this time

Next years EPS growth forecast at 6.5% is the 2nd lowest since 1988
35
Consensus forecast for next year's earnings growth measured in December every year
30
Today
25
20
Not 10-12%
this time
15
10
5
0
1988
1991
1994
1997
2000
Source: Barclays Research, DataStream, MSCI .

Consensus is from IBES global aggregates for Weighted Year-Over-Year Growth In EPS Earnings
29
2003
2006
2009
2012
2015
BACK TO CONTENTS
December 15
Ex-energy and materials, earnings have been growing at 15%

is driven by better GDP growth this year, the weaker euro and a low base
80%
70%
MSCI Europe trailing earnings growth (%y/y)

MSCI Europe ex Energy and Materials: trailing earnings growth (%y/y)
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
1996
1998
2000
2002
2004
2006
Source: Barclays Research, DataStream, MSCI, OECD
2008
2010
2012
2014
BACK TO CONTENTS
30
December 15
Corporate pricing is improving relative to labour costs

This is supportive of a margin recovery
% Year-on-year
ULC Growth: Euro Area
Corporate Pricing
6
5
4
3
2
1
0
-1
-2
2001
2003
2005
2007
2009

Note: Margins as implied by Sales and Earnings forecasts
2011
2013
2015
BACK TO CONTENTS
31
December 15
Corporate pricing is improving relative to labour costs

This is supportive of a margin recovery
% Point Gap
% Point Gap
Euro Area Corp. Pricing- ULC Growth
3.0
4.0
Change in Profit Share of GDP (RHS)
2.0
2.0
1.0
0.0
0.0
-1.0
-2.0
-2.0
-4.0
-3.0
-6.0
-4.0
-5.0
2001
-8.0
2003
2005
2007
2009

Note: Margins as implied by Sales and Earnings forecasts
2011
2013
2015
BACK TO CONTENTS
32
December 15
We estimate the market is priced for long-run nom. growth of 0%

This is even below todays nominal GDP growth figures
Annual % growth
14%
Long-term implied earnings growth
12%
Euro Area Annual Nominal GDP Growth
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Source: Barclays Research, DataStream, IBES, MSCI

NB. Implied growth is the output of a residual income model in which the first three years of earnings are given by consensus estimates, then a fade over the next five years to long-run average
ROE. We also assume a constant risk premium of 5%.
BACK TO CONTENTS
33
December 15
The improvements in the economy do not appear to be

reflected in the way European stocks are priced
Todays CAPE has typically led to 105%
total returns over subsequent 5 yrs
The European cyclically-adjusted PE

13% below the long-term average
350%
45
MSCI Europe: Subsequent 5y returns vs 10yr CAPE
MSCI Europe: Cyclically-adjusted PE (10 year)
300%
40
Long-term average
250%
13%
discount
35
200%
30
150%
25
100%
20
50%
15
0%
5
10
-100%

0
1980
10
15
20
25
30
35
40
45
-50%
-150%
1985
1990
1995
2000
2005
2010
2015
Today's CAPE has

provided 105%
returns over
subsequent 5
years
Source: Barclays Research: MSCI
34
BACK TO CONTENTS
December 15
European Equities Look Attractive vs. Bonds and Credit

Equity Risk Premium is still very high,
while credit spreads are very low
7%
The gap between earnings yield and

credit yield is the widest
Yield Gap, %
point
ERP is
still very
high
European Equity Risk Premium

Pan Euro Inv Gd credit risk premium
6%
Europe: 12 month forward earnings yield

less BAA credit yield
5%
4%
IG risk
premium
near lows
3%
2
1
2%
0
-1
1%
-2
0%
2001
2003
2005
2007
2009
2011
2013
-3
1999
2015
Source: Barclays Research, DataStream. Note: Equity risk premium calculated using a traditional
Gordon Growth Model
2001
2003
2005
2007
35
2009
2011
2013
2015
BACK TO CONTENTS
December 15
Analyst sentiment is also very low

Only 43% of European stock recommendations are a buy
65
Percentage of buy recommedations from analysts

Tech Bubble
60
Credit
Bubble
55
U shaped
Recovery
50
45
Bottom of Tech
Selloff
EM Crisis
40
Bottom of Financial
Crisis
Today
35
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
BACK TO CONTENTS
36
December 15
Sentiment this negative has been a positive sign for the market
STOXX 600 and percentage of buy recommendations
Less than 45%
Greater than 52%
STOXX 600
450
400
350
300
250
200
150
100
50
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
BACK TO CONTENTS
37
December 15
European stocks are at a multi-decade discount to US stocks

Investors do not appear to be factoring in an improvement in relative profitability
1.2
1.1
1.40
MSCI Europe/US: P/Book
1.30
Europe/US: ROE (rhs)
1.20
1.0
1.10
0.9
1.00
0.8
0.90
0.80
0.7
0.70
0.6
0.60
0.5
1975
0.50
1980
1985
1990
1995
2000
2005
2010
2015
BACK TO CONTENTS
38
December 15
On a relative basis too, earnings revisions are key

The performance of Europe vs. US can primarily be explained by earnings
180
MSCI Europe vs US: Relative performance (total returns, $)

MSCI Europe/US: Relative forward total earnings ($)
170
160
150
140
130
120
110
100
90
80
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
BACK TO CONTENTS
39
December 15
Relative performance has de-coupled from data surprises

Recent European data has been encouraging but performance has not
Data Surprise Gap

Gap in Data Surprises: EZ-US
150
15
Rel. Perf. Europe - US $ (rhs)
100
10
50
-50
-5
-100
-10
-150
Jan 12
-15
Jul 12
Jan 13
Jul 13
Jan 14
Jul 14
Jan 15
Jul 15
BACK TO CONTENTS
40
December 15
Relative to Developed Markets, the risk premium on

Continental European stocks is higher
On a six month view, this has seen continental European stocks outperform
3.5
30%
Conti Europe
3.0
Conti Europe Performance relative to the MSCI ACWI over the next 6 months (rhs)
2.5
20%
2.0
1.5
10%
1.0
0.5
0%
0.0
-0.5
-10%
-1.0
-1.5
Jan-99
-20%
Jan-01
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11

*Real yield gap defined as the difference between equity capitalisation weighted 10-year sovereign yield and contemporaneous inflation
**MSCI Continental European index total return less MSCI Developed Markets total return one year ahead
41
Jan-13
Jan-15
BACK TO CONTENTS
December 15
The risk to our overweight call is that it is a little consensual

However, international investors have backed away from the market recently
Eur bn
Purchases of Euro Zone equities by overseas investors
60
40
20
0
-20
-40
-60
2008
2009
2010
2011
2012
Source: Barclays Research, ECB
2013
2014
2015
BACK TO CONTENTS
42
December 15
Buying from domestic investors needs to pick up, in our view

while net issuance of equity declined
in Q3
Euro Area households are holding a lot

of cash
%
Households Cash as % Of total financial assets
37%
36%
35%
34%
33%
32%
31%
30%
29%

28%
1999
2001
2003
2005
2007
2009
2011
2013
2015
43
BACK TO CONTENTS
December 15
CONTENTS
Modest Underweight on the UK

Consumer confidence could decline
Wages are increasing, rates should eventually go up
Profit margins for Domestic UK companies under pressure
44
December 15
FTSE 250 and FTSE 100 earnings growth

Mid-cap UK earnings growth has also slowed down
% year-on-year
100
FTSE 100
FTSE 250
80
60
40
20
0
-20
-40
-60
2001
2003
2005
2007
2009
2011
2013
2015
BACK TO CONTENTS
45
December 15
We forecast 8% earnings growth in the UK in 2016

This compares to consensus of 6%
Actual
Model
Forecast
Consensus
80
60
40
20
0
-20
-40
-60
Q1
2002
Q1
2003
Q1
2004
Q1
2005
Q1
2006
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013

our model suggests that earnings growth for the FTSE All Share Index recovers from -20% in 2015 to +8% in 2016. This is again slightly
ahead of the bottom-up consensus growth forecast of 6% for 2016.Details of model available on request
46
Q1
2014
Q1
2015
Q1
2016
Q1
2017
BACK TO CONTENTS
December 15
UK earnings estimates have seen big downgrades

Earnings forecast to decline by 14% in 2015
Year end EPS for MSCI UK
2007
2008
2009
2010
2012
2013
2014
2015
2011
180
170
160
150
140
130
120
110
100
2007
2008
2009
2010
2011
2012
2013
2014
2015
BACK TO CONTENTS
47
December 15
Consumer confidence around UK elections

A consistent decline in UK consumer confidence post elections
Consumer Confidence
Election date = zero
1983
1987
1992
1997
2001
2005
2010
10
5
0
-5
-10
-15
-20
-25
Election Date
-30
-24 -22 -20 -18 -16 -14 -12 -10 -8
-6
-4
-2
10 12 14 16 18 20 22 24
Months before/ after election date
Source: Barclays Research. Gfk

Note: Confidence has been re-based to zero in the month of the election
BACK TO CONTENTS
48
December 15
Past and current electoral cycles and consumer confidence

In 2010, confidence peaked ahead of the election
Consumer Confidence
Election date = zero
Average*
10
2010
5
Current
0
-5
-10
-15
-20
Election Date
-25
-24 -22 -20 -18 -16 -14 -12 -10 -8
-6
-4
-2
10 12 14 16 18 20 22 24
Months before / After Election Date

Note: Rebased to zero at election date.
*Average is of past 7 elections
BACK TO CONTENTS
49
December 15
Domestic UK Consumer Basket and consumer confidence

A decline in confidence may lead to underperformance for domestic consumer stocks
80
40
UK Domestic Consumption Basket vs. Market (%y/y, total returns)
60
30
Consumer Confidence (yoy chg, rhs)
40
20
20
10
-20
-10
-40
-20
-60
-30
-80
1997
-40
1999
2001
2003
2005
2007
Source: Barclays Research, DataStream, Gfk
2009
2011
2013
2015
BACK TO CONTENTS
50
December 15
Profit margins for UK stocks with high wage costs could decline
The margins for these stocks have been squeezed recently as wages have picked up
% margin
% year-on-year
Gross Margin*
Real average earnings growth (RHS)
18
5.00
17
4.00
3.00
16
2.00
15
1.00
14
0.00
13
-1.00
12
-2.00
11
-3.00
10
2001
-4.00
2003
2005
2007
2009

*Gross margin of UK stocks with high wage costs
2011
2013
2015
BACK TO CONTENTS
51
December 15
CONTENTS
Overweight Japan
Structural change in underway
Companies are increasing cash returns to shareholders
Expect earnings recovery to continue, valuations again appear attractive
52
December 15
Japanese non-financial corporate sector financial surplus/deficit

Corporate sector saving is arguably holding back the wider Japanese economy
% of GDP
10%
Japanese non-fin. Corp sector financial surplus
5%
0%
-5%
-10%
-15%
1980
1985
1990
1995
2000
Source: Barclays Research, MoF
2005
2010
2015
BACK TO CONTENTS
53
December 15
Japanese and US non-financial balance sheet leverage

Japanese balance sheet leverage is already low and still falling
Ratio
Japanese Non- Financial Net Debt / Equity Ratio
1.2
US Non- Financial Net Debt / Equity Ratio
1.0
0.8
0.6
0.4
0.2
0.0
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
BACK TO CONTENTS
54
December 15
Japanese companies now buying back 1% of market cap

Historically this may have been viewed as a sign of a market top in Japan
1.5%
Buying from Non Financials (3m annualised, % market cap)
1.0%
0.5%
0.0%
-0.5%
-1.0%
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
BACK TO CONTENTS
55
December 15
In the past Japanese companies used to over-invest

This time round, they have been more disciplined with their capital
Yen (tr), 4QMA

18
Operating Profit
16
Investment
14
12
10
8
6
4
2
0
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
BACK TO CONTENTS
56
December 15
Japanese dividend estimates have been revised higher

Dividend announcements have exceeded expectations
Div / share
19
FY 2015
FY 2016
18
17
16
15
14
13
Jan-13
Jul-13
Jan-14
Jul-14
Source: Barclays Research, DataStream, MSCI, IBES

*Based on index for MSCI Japan (@:JPMSCIP)
Jan-15
Jul-15
BACK TO CONTENTS
57
December 15
Margins have improved but ROE has not as much

Japanese non-financial companies ordinary profit margin and ROE
18%
7%
Japan ROE
16%
6%
Japan Profit Margin (rhs)
14%
5%
12%
10%
4%
8%
3%
6%
2%
4%
1%
2%
0%
1955
0%
1960
1965
1970
1975
1980
1985
Source: Barclays Research, DataStream, MoF
1990
1995
2000
2005
2010
2015
BACK TO CONTENTS
58
December 15
There is considerable scope for companies to improve pay-outs

While earnings have increased, shareholders have yet to reap the benefits
Yen tr, trailing 4Q
Dividends plus buybacks
Earnings
25
Fwd
ests.
March
2016
20
15
10
5
0
-5
-10
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
BACK TO CONTENTS
59
December 15
Earnings should continue to grow

Our model for Japanese earnings growth*
120
Japan: Earnings growth (%y/y)

Model
80
Forecast
40
-40
-80
Q1 2015
Q1 2014
Q1 2013
Q1 2012
Q1 2010
Q1 2009
Q1 2008
Q1 2007
Q1 2006
Q1 2005
Q1 2004
Q1 2003
Q1 2002
Q1 2001
Q1 2000
Q1 1999
Q1 1998
Q1 1997
Q1 1996
Q1 1995
Q1 1994
Q1 1993
Q1 1992
Q1 1991
*Model details available on request

Source: Barclays Research, MSCI, IBES
Q1 2011
-120
BACK TO CONTENTS
60
December 15
The real yield gap supports buying Japanese stocks, in our view
Real yield gap vs one year forward performance
50%
Yield Gap to MSCI ACWI: Japan

4
40%
Japan Performance relative to the MSCI ACWI over the next 12 months (rhs)
30%
20%
10%
0%
-1
-10%
-2
-20%
-3
-30%
-4
-40%
-5
1996
1998
2000
2002
2004
2006
2008
2010
2012
-50%
2014
BACK TO CONTENTS
61
December 15
Japan relative to World ex-Japan non-financial EV/EBITDA multiple

Again near cheapest levels seen since 1994
1.5
Japan/World: EV/EBITDA
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
1995
1997
1999
2001
2003
2005
Source: Barclays Research., DataStream
2007
2009
2011
2013
2015
BACK TO CONTENTS
62
December 15
Japanese vs US EV/EBITDA
Against forward one-year relative
market returns from 2003
Non-financial EV/EBITDA multiple
Ratio
Japan v US non-fin. EV/EBITDA ratio
1.2
Relative Japan / US EV/EBITDA Multiple
1.1
1.1
1.0
1.0
0.9
0.9
0.8
0.8
0.7
0.7
0.6
2003
-30.00
2005
2007
2009
2011
2013
2015
1.1
y = -0.0041x + 0.8106
R = 0.2458
1.0
0.9
0.8
0.7

0.6
-20.00 -10.00
0.00
10.00
20.00
30.00
40.00
One year ahead relative Japan /US $ Return
63
BACK TO CONTENTS
December 15
Foreigners have been selling Japanese stocks

Our Overweight position appears less consensual
6.0%
Buying from Foreigners (3m annualised, % market cap)
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
BACK TO CONTENTS
64
December 15
CONTENTS
Overweight Emerging Markets

Extremely negative sentiment supports a contrarian perspective, in our view
The risk premium is very high relative to developed markets
Catalyst would be a realisation that growth is not approaching a drop-off
65
December 15
Investors have been selling EM equities aggressively versus DM

Sentiment this negative has typically seen EM outperform over the next 6 months
-60%
EM - DM flows % AUM (1yr z score)
EM-DM 6 month fwd $ performance (inverted, rhs)
-40%
-20%
0%
-2
20%
-4
40%
-6
2003
60%
2004
2005
2006
2007
2008
2009
2010
Source: EPFR, Barclays Research.
2011
2012
2013
2014
2015
BACK TO CONTENTS
66
December 15
EM equities now offer a higher risk premium than DM

In the past, that has meant they have subsequently outperformed
6
Yield Gap to MSCI ACWI: EM
EM Performance relative to the MSCI ACWI over the next 12 months (rhs)
60%
5
4
40%
3
20%
2
1
0%
0
-20%
-1
-2
-40%
-3
-4
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

*Real yield gap defined as the difference between equity capitalisation weighted 10-year sovereign yield and contemporaneous inflation
**MSCI Emerging Markets index total return less MSCI Developed Markets total return one year ahead
67
-60%
BACK TO CONTENTS
December 15
We are assuming an improvement in EM export growth

EM listed company earnings growth has tracked EM exports downwards
80
120
Exports from EM Countries (Wgtd by Eq. Market Cap, %Y/Y)

MSCI EM: Trailing earnings growth (rhs)
60
90
40
60
20
30
-20
-30
-40
1997
-60
1999
2001
2003
2005
2007
2009
2011
2013
2015
BACK TO CONTENTS
68
December 15
Which is basically a function of Developed Market demand

A soft patch in the global economy has hampered EM exports
80
Exports from EM Countries (Wgtd by Eq. Market Cap, %Y/Y)
90
Developed Country Imports (% y-y, RHS)
60
60
40
30
20
0
0
-30
-20
-40
1997
-60
1999
2001
2003
2005
2007
2009
2011
2013
2015
BACK TO CONTENTS
69
December 15
The Li Keqiang Index suggests a deceleration in China

Although money supply growth suggests an improvement going forward
30
40
Li Keqiang Index (lhs)
35
25
Real M1 Money Supply Growth (3mma, 3m lead, rhs)
20
30
25
20
15
15
10
10
5
0
0
-5
-5
2005
-10
2006
2007
2008
2009
2010
2011
Source: Barclays Research, Bloomberg, DataStream, Peoples Bank of China
2012
2013
2014
2015
2016
BACK TO CONTENTS
70
December 15
Property prices increasing in Chinas leading cities

Improvement in the property market since mid-2014
2.0
CH NEW HOUSE PRICES (%MOM, 70 MEDIUM & LARGE CITIES) NADJ
1.5
CH SECOND RESIDENTIAL BLDGS PRICES(%MOM,70 MEDIUM &LARGE CITIES)
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Source: Barclays Research, CREIS

Note: First-tier cities include Beijing, Shanghai, Guangzhou and Shenzhen; second-tier cities include Changsha, Ningbo, Tianjin, Baotou, Xian, Chengdu and Chongqing.BACK
71
TO CONTENTS
December 15
Property sales have also picked up recently, which has

typically led to a pickup in new construction and commodity demand
120%
China Residential Floorspace Sold (6m lead, smoothed)
China Residential Floorspace Started (smoothed)
100%
80%
60%
40%
20%
0%
-20%
-40%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
BACK TO CONTENTS
72
December 15
China housing market appears to be in recovery

Floor space sold has also had a 6-month lead on Iron Ore prices
120%
200
China Residential Floorspace Sold (6m lead, smoothed)
160
Iron prices (rhs, %y/y)

80%
120
80
40%
40
0%
-40
-40%
2007
Barclays
EquityEquity
Strategy
Barclays
Strategy
-80
2008
2009
2010
2011
2012
2013
2014
2015
2016
BACK TO CONTENTS
73
December 15
Chinese consumption has also been stable recently

Retail sales (ex-petrol) growing at 20% of late
35%
Retail Sales (Total Ex Petrol)
6m avg
30%
25%
20%
15%
10%
5%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
BACK TO CONTENTS
74
December 15
The risk is a further decline in EM Currencies

Although now EM currencies are already back to the lows reached in 2009 and
2002 inflation-adjusted, equity-weighted EM FX is also below its average
120
EM/U$ - Real
Average
EM/U$ - Nominal
Average
110
100
90
80
70
60
50
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
40
BACK TO CONTENTS
75
December 15
Rising US yields could also be another risk to the call

Although prior to the Taper Tantrum, EM outperformed when US yields increased
80%
3
EM/ MSCI World (%y/y)
US 10y yield (rhs, 12m change)
60%
40%
1
20%
0
0%
-1
-20%
-2
-40%
-60%
1993
-3
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
BACK TO CONTENTS
76
December 15
Not all EM countries are similarly priced

EMEA and Asia look particularly attractive, in our view
30%
Price/book discount vs history since 2003

20%
10%
0%
-10%
-20%
-30%
-40%
-50%
-60%
Source: Barclays Research, MSCI, DataStream.
BACK TO CONTENTS
77
December 15
After a roller coaster ride, Chinese stocks are back at a discount

H shares particularly low on PE
2.4
MSCI China/ MSCI AC World: 12m fwd PE
2.2
Shanghai Comp/MSCI AC World: 12m fwd PE
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
BACK TO CONTENTS
78
December 15
Chinese stocks also now looking attractive relative to HK

Relative Price/Book also near decade lows
2.2
China/HK: Price/Book
2.0
1.8
1.6
1.4
1.2
1.0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
BACK TO CONTENTS
79
December 15
C&EE should benefit from recovery in developed Europe

Polish earnings have been linked to developed European growth
MSCI Poland: Earnings growth (%y/y)

80
40
EU Business Confidence (%y/y, lead by 6m, rhs)
30
60
20
40
10
20
0
0
-10
-20
-20
-40
-30
-60
2001
-40
2003
2005
2007
2009
2011
2013
2015
BACK TO CONTENTS
80
December 15
EM cyclical sectors look cheaply priced

Sector valuations vary across EM with defensive sectors looking expensive
30%
20%
Price/book discount vs. history (since 1995)
10%
0%
-10%
-20%
-30%
-40%
-50%
-60%
-70%
BACK TO CONTENTS
81
December 15
Emerging market banks relative valuations: PE

EM Banks look priced especially low, both relative to the wider EM universe and
also Banks in the developed markets
Ratio
EM Banks Rel. To Dev. Banks
EM Banks Rel. To EM. Market
1.7
1.5
1.3
1.1
0.9
0.7
0.5
2001
2003
2005
2007
2009
2011
2013
2015
BACK TO CONTENTS
82
December 15
CONTENTS
US Equities: Further through the cycle

US valuations are higher than elsewhere
Margins have already reached a cyclical high, and revenue growth is now necessary
Fed policy support is weakening and the dollar is strengthening
83
December 15
Our favourite US indicator is still firmly non-recessionary

Since 1959, a rolling over of this indicator has been a good predictor of recession
1.4
NBER Recession
US Leading/Coincident Indicator
1.3
1.2
1.1
1.0
0.9
0.8
1959
1963
1967
1971
1975
1979
1983
1987
Source: Barclays Research, DataStream, Conference Board
1991
1995
1999
2003
2007
2011
2015
BACK TO CONTENTS
84
December 15
While US equities are not cheap, they aren't in a bubble either

Not as expensive on Shiller PE when calculated using NIPA earnings
CAPE Multiple
50
S&P CAPE
NIPA CAPE
Average S&P CAPE
Average NIPA CAPE
45
40
35
30
25
20
15
10
5
0
1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
Source: Barclays Research, S&P, NIPA
BACK TO CONTENTS
85
December 15
This is because S&P profits have diverged from NIPA profits

Perhaps due to a change in accounting regulations
Q1 1970 = 100
3,500
S&P
3,000
NIPA
2,500
MSCI
2,000
1,500
1,000
500
0
1970
1975
1980
1985
1990
1995
Source: Barclays Research, S&P, NIPA, MSCI; S&P reported earnings, NIPA is on historical cost basis
86
2000
2005
2010
2015
BACK TO CONTENTS
December 15
However, the US is more expensive than international equities

Relative Price/Book is now very high
1.7
US/DM: Price/Book
1.6
US/ACWI: Price/Book
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
1975
1980
1985
1990
1995
2000
2005
2010
2015
BACK TO CONTENTS
87
December 15
The earnings growth advantage the US enjoyed appears to be turning

Better earnings growth now in Japan and Continental Europe, in our view
25%
US/ACWI: 12m fwd EPS (% y/y)
20%
US/ACWI: Relative performance (% y/y)
15%
10%
5%
0%
-5%
-10%
-15%
-20%
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
BACK TO CONTENTS
88
December 15
US Analyst sentiment
51% of US stock recommendations are a buy
80
Percentage of Buy Recommedations from Analysts

75
Tech
Bubble
70
65
Hopes for U shaped
Recovery
60
Credit
Bubble
55
50
EM Crisis
Today
45
Bottom of Financial
Crisis
Bottom of Tech
Selloff
40
35
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
BACK TO CONTENTS
89
December 15
US corporate cap ex looks solid

Survey data indicate robust cap ex plans
Survey Balance
%YoY
US Philadelphia Fed Survey Cap.Ex. Plans (2 qtr lead)

35
Latest
datapoint for
Nov-15
US Non-Residential Private Fixed Investment (rhs)
30
25
20
15
10
15
0
10
-5
-10
-5
-10
-15
-15
-20
1999
2001
2003
2005
2007
2009
2011
2013
2015
-20
2017
BACK TO CONTENTS
90
December 15
We would not fear a rate hike from the Fed

As with the taper tantrum, we believe the recent rise in stock-bond correlation will
prove to be temporary
Correlation Coeff.
Yield %
1.0
10
26-week Stock/Bond Return Correl.

0.8
9
Barclays US Treasury Index Yield (rhs)
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
1991
1993
1995
1997
1999
2001
2003

Note: Treasury yields calculated as rolling 26 week correlation of returns
2005
2007
2009
2011
2013
2015
BACK TO CONTENTS
91
December 15
CONTENTS
Style biases
The recent outperformance of value stocks could continue
We believe the premium paid for quality is too high; this could start to be unwound
92
December 15
Europes enduring premium* for quality

The premium attached to high quality stocks in Europe is extremely high

Source: Barclays Research, DataStream, IBES, MSCI, Worldscope.

*We show the median 12 month forward PE for the top quartile of quality stocks in MSCI Europe divided by the median PE for the lowest quartile of European quality stocks.
Quality is defined as the performance of the top quartile of MSCI Europe index ranked according to ROE, net debt/equity and earnings variability, rebalanced monthly. BACK
93
TO CONTENTS
December 15
The premium for quality is highest in Continental Europe

The premium for quality in Europe ex-UK is much higher than the UK, while in the
US, quality trades on a discount
Ratio
Europe ex-UK
UK
US
1.8
1.6
1.4
1.2
1.0
0.8
0.6
1988
1991
1994
1997
2000
2003
2006
2009
2012

Note: Ratio is for the median PE of highest quality versus lowest quality quartiles in respective MSCI indices.
Quality is defined as the performance of the top quartile of MSCI Europe index ranked according to ROE, net debt/equity and earnings variability, rebalanced monthly.
94
2015
BACK TO CONTENTS
December 15
How cheap are value* stocks?

European Value stocks do look cheaply priced on P/Book
Ratio
PE discount for 'value'
Ratio
PB discount for 'value' (RHS)
0.7
0.4
0.6
0.3
0.5
0.2
0.4
0.1
0.3
0.2
1988
0
1991
1994
1997
2000
2003
2006
2009
2012
2015
Source: Barclays Research, DataStream, IBES, MSCI, Worldscope

Note: *Value defined according to a ranking of stocks in MSCI Europe according to 12 month forward PE, trailing price/book and trailing dividend yield. We show the median PE and PB for the best
value quartile compared with the most expensive quartile, rebalanced monthly.
BACK TO CONTENTS
95
December 15
High growth stocks trade on the same multiple as those with

mediocre growth
Investors seem unwilling to pay for high growth, but very willing to pay for safety
Ratio
Multiple for 1st quartile vs 2nd quartile growth stocks
1.4
Average
1.3
1.2
1.1
1.0
0.9
1988

1990
1992
1994
1996
1998
2000
2002
Note: Growth defined by 3-year consensus, long-term and the internal growth rate. Source: Barclays Research
96
2004
2006
2008
2010
2012
2014
BACK TO CONTENTS
December 15
Global Value vs. Quality and US bond yields

If yields increase, Value should start to outperform
105
6.0
Global: Value vs Quality
100
5.5
US 10y yields (rhs)
95
5.0
90
4.5
85
4.0
80
3.5
75
3.0
70
2.5
65
2.0
60
1.5
55
2001
1.0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
BACK TO CONTENTS
97
December 15
Value stocks look attractive vs growth stocks on the CAPE

The cheapness of value stocks is particularly startling in the UK and Europe
4.0
3.0
US Value/Growth CAPE (z-score)

Europe ex UK Value/Growth CAPE (z-score)
UK Value/Growth CAPE (z-score)
2.0
World Value/Growth CAPE (z-score)
1.0
0.0
-1.0
-2.0
-3.0
-4.0
1985
1987
1989
1991
1993
1995
1997
1999
2001

Note: Z-score calculated over history since 1985
2003
2005
2007
2009
2011
2013
2015
BACK TO CONTENTS
98
December 15
Low quality vs high quality performance and real money growth

Stronger month growth should encourage a rotation away from high quality
stocks in Europe
%y-y
% y-y
Euro Area real M1 growth (6m lead)
16
30
'low quality' v 'high quality' performance (RHS)
14
20
12
10
10
8
0
6
4
-10
2
-20
0
-2
-30
-4
-6
1996
-40
1998
2000
2002
2004
2006

Note: Chart shows returns for bottom versus top quality quartiles in MSCI Europe ex-UK
2008
2010
2012
2014
2016
BACK TO CONTENTS
99
December 15
Equity investors have been slow to respond to credit

Quality should underperform further in response to tighter credit spreads
Jan 1982 = 100
% point spread
140
5.0
130
Relative performance of "quality"*
4.5
Credit spread** (rhs)
4.0
120
3.5
3.0
110
2.5
100
2.0
1.5
90
1.0
80
0.5
70
1982
0.0
1985
1988
1991
1994
1997
2000
Source: Barclays Research, Datastream, MSCI, Moodys

* Relative performance of MSCI European quality index versus MSCI European value
** BAA-AAA corporate credit spread, pre-March 2000 US, post-March 2000 Europe
2003
2006
2009
2012
2015
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100
December 15
Where are Europes value stocks*?

European sectors that are over-/under-represented over time in the value market
Source: Barclays Research, DataStream, IBES, MSCI, Worldscope

Note: *Graphic shows the degree to which each sector is either over- (darker blue) or under-represented (paler) in the top quartile of Pan-European value stocks.
Value is defined by forward PE, trailing PB, and trailing dividend yield.
101
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December 15
Where are Europes high quality stocks*?

European sectors that are over-/under-represented over time in the quality market

Note: *Graphic shows the degree to which each sector is either over- (darker blue) or under-represented (paler) in the top quartile of Pan-European quality stocks.
Quality is defined by ROE, net debt / equity and earnings variability.
102
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December 15
Where is the growth?

Continental Europe
Europe ex UK Growth High
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
##
Energy
Materials
Industrials
C. Disc
C. Staples
Health Care
Financials
Technology
Telecoms
Utilities
Source: Barclays Research
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103
December 15
CONTENTS
Sector Strategy
Prefer cyclicals to defensives
The price paid for safety is too high, in our view
Higher yields should favour Financials
Within Europe, we prefer Domestics to Exporters
104
December 15
Recommended Global Sector Weightings

Overweight Financials, Industrials, Materials and Energy
Recommended
Weighting
Benchmark
Weighting
Gap
10.9%
12.9%
-2.0%
1.3%
10.1%
-8.8%
Energy
11.9%
6.8%
5.2%
Financials
31.9%
21.5%
10.5%
3.1%
12.2%
-9.1%
Industrials
16.4%
10.5%
5.9%
Information Technology
13.1%
14.6%
-1.5%
Materials
7.5%
4.7%
2.8%
Telecoms
2.5%
3.7%
-1.2%
Utilities
1.3%
3.1%
-1.8%
Total
100%
100%
Sector
C. Discretionary
C. Staples
Health Care
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105
December 15
Cyclicals underperformance has been severe

Investors have emphatically embraced the no-growth view
110
Global Cyclicals/Defensives* (Total Return)
Global Business Confidence (rebased)
100
90
80
70
60
50
1998
2000
2002
2004
2006
2008
2010
2012

*MSCI ACWI M1 sectors. Cyclicals: Materials, Industrials, Consumer Discretionary, Financials. Defensives: Consumer Staples, Healthcare, Utilities.
106
2014
2016
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December 15
Cyclicals have underperformed

despite a pick-up in Global Economic Surprises
105
100
MSCI Europe: Cyclicals (incl financials) / Defensives (Performance)
80
Global Economic Data Surprises (rhs)
100
60
95
40
20
90
0
85
-20
-40
80
-60
75
-80
70
2010
-100
2011
2012
2013
2014
Source: Barclays Research, DataStream, CESI. Note: We use the average of the Europe, G10 and EM data surprise indices.
Cyclicals = Industrials, Materials, Consumer Discretionary, IT and Financials. Defensives = Staples, Healthcare, Utilities and Telecoms.
107
2015
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December 15
Sentiment towards cyclicals has turned recently

Fund flow is at a 1 standard deviation low versus history
Flows to European Cyclicals vs. Defensives

(Contrarian Indicator)
Sell Cyclicals, Buy Defensives
1.0
0.8
0.5
0.3
0.0
-0.3
-0.5
-0.8
Buy Cyclicals, Sell Defensives
-1.0
2009
2010
2011
2012
2013
Source: Barclays Research, DataStream, CESI. Note: We use the average of the Europe, G10 and EM data surprise indices.
Cyclicals = Industrials, Materials, Consumer Discretionary, IT and Financials. Defensives = Staples, Healthcare, Utilities and Telecoms.
108
2014
2015
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December 15
Sectorally, the call is again on whether the cycle is over

Cyclical sector valuations near prior bull market corrections
1.1
European Cyclicals/ Defensives: Price/Book

Average
1.0
0.9
0.8
0.7
Fed Hike
EM Crisis
US Growth
Scare
Euro Debt
Crisis
Today
0.6
Financial Crisis
Tech Crisis
0.5
1996
1998
2000
2002
2004
2006
Source: Barclays Research, IBES, DataStream.
2008
2010
2012
2014
2016
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109
December 15
Bond proxy sectors and yield-plays have performed well

Quality has performed well against value
170
Performance of Low vs. High Duration Sectors

Value vs. Quality
150
6
US 10y yield (rhs)
130
110
90
70
2
50
2003
1
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
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110
December 15
If yields edge higher, sectors with lower duration should do better

Staples , Healthcare are most bond-like, while banks have least duration
60%
Correlation with bond returns (since 2010)
40%
20%
0%
-20%
-40%
FD/BEV/TOB
PH/BIO L SCI
H/C EQ/SVS
H/H PERS PRD
REAL ESTATE
T/CM SVS
FD RETAIL
MEDIA
CONS SVS
S/W & SVS
RETAILING
UTILITIES
ENERGY
CONS DUR
TRANSPT
SEMIS
TECH HRDW
CAP GDS
INSURANCE
MATERIALS
AUTOS
DIV FIN
BANKS
COML/PROF SVS
-60%
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111
December 15
Domestics seeing better earnings revisions than exporters

Domestically exposed stocks look relatively cheaply priced
0.3
Relative EPS Revisions: Domestic vs. Exporters
0.2
10-week average
0.1
0.0
-0.1
-0.2
-0.3
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
BACK TO CONTENTS
112
December 15
Yet they trade at a large discount on Price/Book

Domestically exposed stocks look relatively cheaply priced
1.1
Domestics/Exporters: Relative Price/Book
1.0
Average
0.9
0.8
0.7
0.6
0.5
54% discount
0.4
2003
2005
2007
2009
2011
2013
2015
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113
December 15
Global real money growth is supportive of banks

The inflation-adjusted pace of money growth has had a 9-month lead on the
performance of the Global Banking sector
% year-on-year
Global Real Money Growth (lagged 9 months, % y-y)
%year-on-year
15
100
World Banks Sector Return (RHS)*
10
50
5
0
0
-50
-5
-10
1974
-100
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
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114
December 15
European Banks and the bond yield

If yields continue to rise, we could become more positive on Banks
180
6.0
Performance of European Banks relative to MSCI Europe

5.5
160
US 10 year yield (rhs)

5.0
140
4.5
4.0
120
3.5
100
3.0
2.5
80
2.0
60
1.5
40
2003
1.0
2005
2007
2009
2011
2013
2015
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115
December 15
European Bank EPS and Lending to Hhlds + NFCs

The recovery in Bank EPS should accelerate over the next 6 months
Euro Bank Trailing EPS

14
90
Loans to Households + Non Fin Corporates (6m lead, bn, RHS)
12
75
10
60
45
30
15
-15
-2
2003
-30
2004
2005
2006
2007
2008
2009
2010
2011
Source, Barclays Research, IBES

Note: We look at the average of Consumer, Housing and Corporate Credit Demand sections of the lending survey
116
2012
2013
2014
2015
2016
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December 15
Euro area bank performance now diverging from earnings

Earnings estimates are improving relative to the market
Jan 1996 = 100
Banks/ Europe (total returns)
180
Banks/ Europe (Fwd Earnings)
160
Banks/ Europe (Fwd EPS)

140
120
100
80
60
40
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source, Barclays Research, IBES
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117
December 15
Euro area bank equity issuance has been declining

Euro area banks have been a major contributor to the rise in equity issuance
Eur bn,
12 month rolling sum
70
60
50
Eurozone Banks: Fresh equity issued (12mth rolling sum)
40
30
20
10
0
-10
1991
1993
1995
1997
1999
2001
2003
Source, Barclays Research, ECB
2005
2007
2009
2011
2013
2015
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118
December 15
Banks looking attractive relative to the market on PE

Relative to history, banks look cheap
European Banks
fwd. PE Rel.
1.1
2.1
Current ratio
1.9
1.0
1.7
Fwd Yield relative
Ratio
...and fwd PE has been a useful guide
R = 0.2705
0.9
1.5
0.8
1.3
0.7
1.1
0.9
0.6

0.7

-60
0.5
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Source: Barclays Research, DataStream, IBES MSCI.
-40
-20
0
20
12 month forward relative return
119
40
60
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December 15
Insurance should continue outperforming

Book value trend in key
80
Asset markets have driven BVPS
125
70
Insurance/Mkt: Performance
550
Insurance Book Value per share
120
75
65
50-50 Bond + Stock Mkt Performance (3m lead, rhs)
Insurance/Mkt: Book Value

70
115
60
110
55
500
450
65
400
50
105
60
45
350
100
40
55
300
95
35
50
250
90
45
30
85
25
80
20
2002
200
40
2002
2004
2006
2008
2010
2012
2014
150
2004
2006
2008
2010
120
2012
2014
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December 15
Underlying strength in the auto market

New car prices rate of increase remains near 0% while used cars are around 4%
6%
Used Car Prices
New Car Prices
4%
2%
0%
-2%
-4%
-6%
2006
2007
2008
2009
2010
2011
Source: Barclays Research, DataStream, German Federal Statistics Office
2012
2013
2014
2015
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121
December 15
Globally Consumer Discretionary valuations and consumer

confidence look to be peaking
Rising rates have typically seen discretionary underperform
4.0
103
Consumer Discretionary (Price/Book)
OECD + 6NME Consumer Confidence (rhs)
3.5
102
3.0
101
2.5
100
2.0
99
1.5
98
1.0
97
0.5
0.0
1980
1983
1986
1989
1992
1995
1998
Source: Barclays Research, DataStream, MSCI, OECD.
2001
2004
2007
2010
96
2013
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122
December 15
Within discretionary, we only like the Autos here.

Volumes are improving
European car sales have been growing for a year and should continue to expand
140
130
10
EU 27 Passenger Car Registration (3m avg)
EU 27 Consumer Confidence (rhs)
0
120
-5
110
-10
100
-15
-20
90
-25
80
-30
70
1988
-35
1991
1994
1997
2000
2003
2006
2009
2012
2015
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123
December 15
Overweight Autos: Pricing is improving

Unlike the disinflation across the Euro Area, car prices are rising
2.5%
30%
2.0%
20%
1.5%
1.0%
10%
0.5%
0%
0.0%
-0.5%
-10%
-1.0%
-20%
Auto price inflation (%y/y)

-1.5%
Auto sector revenue growth (lagged 1 year, rhs)
-2.0%
2001
-30%
2003
2005
2007
2009
2011
2013
2015
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124
December 15
Global Materials discount weaker confidence

Comparing valuation and global business confidence
Basic Materials (Price/Book)

3.5
104
OECD + 6NME Manufacturing Confidence (rhs)
103
3.0
102
2.5
101
2.0
100
99
1.5
98
1.0
97
0.5
1980
96
1983
1986
1989
1992
1995
1998
Source: Barclays Research, DataStream, MSCI, OECD
2001
2004
2007
2010
2013
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125
December 15
Overweight Materials:
Earnings estimates reflecting low Iron Ore prices
Low prices already there in the estimates
90
MSCI Europe: Mining 12 fwd EPS ($)
230
Iron Ore (rhs)
80
70
180
60
50
130
40
30
80
20
10
0
2007
2008
2009
2010
2011
2012
2013
2014
30
2015
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126
December 15
Mining: The PB ratio for the mining sector is near 2009 lows
Reflective of Chinese IP, which is currently also very low but could pickup
4.0
25
MSCI ACWI Mining P/Book
3.5
Industrial Production: Overall (3m avg)
20
3.0
2.5
15
2.0
10
1.5
1.0
0.5
0.0
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
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127
December 15
China housing market appears to be in recovery

Floor space sold has also had a 6-month lead on Iron Ore prices
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128
December 15
Overweight European Telecoms: Pricing power improving

Should support revenue growth for the sector
% year-on-year
% year-on-year
15
10
-1
-3
-5
-5
Relative telecom inflation
-7
-10
Relative Telecom sector revenue growth (rhs)
-9
2001
-15
2003
2005
2007
2009
2011
2013
2015
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129
December 15
Telecoms
More cyclical post 2010 than before
130
Relative performance of Telecoms (total returns)
30
EU Services Confidence (rhs)
120
20
110
10
100
0
90
-10
80
-20
70
60
2003
-30
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
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130
December 15
Energy: Has enough of a discount been already priced in?

The Energy sector is trading at a multi-decade discount on Price/Book
1.4
MSCI World Energy / MSCI World: Price/Book
1.3
1.2
1.1
1.0
0.9
Relative valuation of the global energy sector is below the levels
seen in 1999 when oil prices reached US$10 a barrel
0.8
0.7
0.6
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
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131
December 15
Energy dividend yield is 2.3% higher than the market

Historically such a wide gap has generally seen the sector outperform
Energy-Market: Dividend Yield
80%
Performance of Energy vs. market over the next 18 months (rhs)

4
60%
40%
20%
0%
-20%
-1
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
-40%
2013
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132
December 15
Industrials and Technology also now look interesting

IFO suggests earnings for Industrials
120
30
MSCI Europe Industrials Earnings (%y/y)
100
80
Tech looks cheap
1.8
Technology/Market: Rel 12m fwd PE
25
German IFO (%y/y, rhs, 9m lead)
20
60
15
40
10
20
-20
-5
-40
-10
-60
-15
-80
-20
1.7
Avg since 2004
1.6
1.5
1.4
1.3
1.2
1.1
-100
1996
1999
2002
2005
2008
2011
2014
-25
2017

1.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
133
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December 15
Contribution of investment to economic growth has been low

This has been the case particularly in the UK and EA
GFCF % GDP
US
UK
EA (rhs)
GFCF % GDP
22%
24%
21%
23%
20%
22%
19%
21%
18%
20%
17%
19%
16%
18%
15%
14%
17%
13%
16%
12%
1995
15%
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
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134
December 15
Capacity utilisation rates have picked up

Space capacity is no longer sufficient to meet demand
Capacity Utilization Rates (z-score)

3
US
EA
UK
2
1
0
-1
-2
-3
-4
1990
1995
2000
2005
Source: Barclays Research, DataStream.

Note: For the UK, capacity utilisation derived from the results of the CBI survey.
2010
2015
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135
December 15
Equipment owned by private enterprises in the US now very old

This has typically seen capital expenditure pick up rapidly
8.0
16
US: Average Age of Fixed Assets: Private Equipment
14
7.8
12
5 year growth in real GFCF (rhs)
7.6
10
7.4
8
6
7.2
4
7.0
6.8
0
-2
6.6
-4
6.4
6.2
1955
-6
Barclays
Barclays Equity
Equity Strategy
Strategy
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
-8
2010
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136
December 15
Capital spending intentions are recovery

Capex plans of US Philly Fed
Survey
Balance
35
High UK investment intentions
50
%YoY
30
UK Manufacturing: Investment Intentions (BCC survey)
Latest
datapoint 15
for Nov-15
40
10
30
20
25
20
UK Services: Investment Intentions (BCC survey)
15
10
10
-5
0
-5
-10
-10
-10
-20
US Philadelphia Fed Survey Cap.Ex. Plans (2 qtr lead)
-15
-15
-30
US Non-Residential Private Fixed Investment (rhs)

-20
-20
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
-40
1990
1995
2000
2005
2010
Source: Barclays Research, DataStream, British Chamber of Commerce

BACK
137
2015
TO CONTENTS
December 15
In the EA, firms are now borrowing for investment

Based on results from the ECBs Bank Lending Survey
30
ECB Lending Survey: Effect of Fixed Investment on Credit Demand
20
10
0
-10
-20
-30
-40
-50
-60
-70
-80
2003
2004
2005
2006
2007
2008
2009
Source: Barclays Research, DataStream, ECB
2010
2011
2012
2013
2014
2015
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138
December 15
Underweight Staples: Rising yields should see them underperform

Rising bond yields could see staples underperform
150
MSCI Europe Staples/Market

140
US 10 year yields (rhs, inverted)
130
120
110
100
90
5
80
70
2003
6
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
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139
December 15
Underweight Healthcare
Rising bond yields could also negatively affect the performance of Healthcare
120
MSCI Europe Healthcare/Market

110
US 10 year yields (rhs, inverted)
100
3
90
4
80
70
60
2003
6
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
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140
December 15
CONTENTS
Recommended Portfolios
141
December 15
Barclays Global recommended portfolio
For full disclosures on each covered company, including details of our company-specific valuation methodology and risks, please refer to http://publicresearch.barcap.com. Data as of 15 Dec 2015.
This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the clients who receive it. The securities discussed herein
may not be suitable for all investors. Barclays recommends that investors independently evaluate each issuer, security or instrument discussed herein and consult any independent advisors they
BACK TO CONTENTS
believe necessary. Source: Barclays Research
142
December 15
Barclays Global recommended portfolio (continued)
* fro m 8th No v 2013
BACK TO CONTENTS
believe necessary. Source: Barclays Research
143
December 15
Barclays European recommended portfolio

believe necessary.
BACK TO CONTENTS
144
December 15
Barclays European recommended portfolio (continued)
* from 8th Nov 2013

believe necessary.
BACK TO CONTENTS
145
December 15
Analyst Certifications and Important Disclosures

Analyst(s) Certification(s):
We, Ian Scott and Dennis Jose, CFA, hereby certify (1) that the views expressed in this research report accurately reflect our personal views about any or all of the subject
securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views
expressed in this research report.
Important Disclosures:
Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's total revenues, a portion of which is
generated by investment banking activities.
This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered/qualified as research analysts with FINRA.
Research analysts employed outside the US by affiliates of Barclays Capital Inc. are not registered/qualified as research analysts with FINRA. These analysts may not be
associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSE Rule 472 restrictions on communications with a subject
company, public appearances and trading securities held by a research analysts account.
Analysts regularly conduct site visits to view the material operations of covered companies, but Barclays policy prohibits them from accepting payment or reimbursement by any
covered company of their travel expenses for such visits.
Barclays Research is a part of the Investment Bank of Barclays Bank PLC and its affiliates (collectively and each individually, "Barclays"). Where any companies are the subject
of this research report, for current important disclosures regarding those companies please send a written request to: Barclays Compliance Department, 745 Seventh Avenue,
13th Floor, New York, NY 10019 or refer to http://publicresearch.barclays.com or call 212-526-1072.
In order to access Barclays Statement regarding Research Dissemination Policies and Procedures, please refer to
https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html. In order to access Barclays Research Conflict Management Policy Statement,
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The Investment Bank's Research Department produces various types of research including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis,
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146
December 15
Important Disclosures (contd.)

Stock Rating
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Industry View
Positive - industry coverage universe fundamentals/valuations are improving.
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Distribution of Ratings:
Barclays Equity Research has 2808 companies under coverage.
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40% have been assigned an Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 43% of companies with this rating are investment
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147
December 15
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Barclays Global Strategy - Our Favourite Charts

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Barclays Global Strategy - Our Favourite Charts

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Equity Research

Global & European Equity Strategy

Dennis Jose, CFA

Our Favourite Charts for 2016

Barclays Global & European Equity Strategy Team

Dennis Jose is a Director with the Global

Jason Hart is a Vice President with the Global

Sarah Grenham has worked at

Aristeidis Ioannidis is an Assistant Vice

Key Aspects of our Strategy

Global Equity Outlook: Market upside for Global Equities (p.4)

Overweight Continental European Equities (p.21)

Key Style Recommendations (p.92)

Underweight US Equities (p.83)

Signs of corporate change; Low valuations discount cyclical peak

Overweight Emerging Market Equities (p.65)

Wage increases and higher rates should squeeze margins

Overweight Japanese Equities (p.52)

Discount to US and history; QE boosting domestic economy; earnings growth accelerating

Modest Underweight on UK Equities (p.44)

Sentiment at an extreme; valuations in line; growth fears overdone, in our view

Overweight Banks, Cyclical Sectors and Value (p.104)

Global Equity Outlook

Sentiment has yet to fully recover from the lows in August

Survey Sentiment Measure (RHS)

Source: Barclays Research, CFTC, DataStream, Investors Intelligence

Sentiment recovery is still consistent with positive returns

Global stock mkt returns over subsequent 6 mths

Source: Barclays Research, DataStream, Investors Intelligence, MSCI.

Non-resident equity investors have been selling equities

Barclays Equity Strategy

12-month cross border flows and subsequent returns

Cross Border Flows (12m sum, % of market cap)

Stock analysts also remain quite cautious

Percentage of buy recommedations from analysts

Source: Barclays Research, DataStream, IBES, MSCI.

Consensus earnings growth forecasts not 10-12% this time

Source: Barclays Research, DataStream, MSCI .

Global CAPE below average at 18

Source: Barclays Research, DataStream, MSCI

18x CAPE should mean healthy forward returns

Subsequent 5 year returns

A CAPE less than 22 has been associated

Source: Barclays Research, DataStream, MSCI.

Other global valuations do not look expensive, in our view

Price/book is in line with the

Barclays Equity Strategy

Source: Barclays Research, MSCI

Barclays Equity Strategy

Source: Barclays Research, MSCI

We estimate the market is priced for long-run nom. growth of 3%

Global Nominal GDP growth - adv. Econ.

Barclays Equity Strategy

Source: Barclays Research, DataStream, IMF, IBES, MSCI

Monetary growth is strong

Global Equity Return (% y-y,RHS)

Source: Barclays Research, DataStream, MSCI, OECD.

Global valuations and profitability vs. past hiking cycles

Source: Barclays Research. MSCI

Global economic growth and earnings growth

Global Real GDP growth (%y/y, lhs)

Barclays GDP Forecast

Source; Barclays Research, DataStream, IBES, MSCI.

Global Earnings Growth Forecasts