Barclays has identified several European stocks that will benefit from China’s anticipated economic stimulus measures. Investors have been watching closely for signs of government intervention as the world’s second-largest economy grapples with sluggish growth and weak domestic demand. Earlier this week, the People’s Bank of China (PBOC) surprised the market by announcing plans to cut several rates, including on existing mortgages. Mainland Chinese stocks jumped on the news. The investment bank suggested that China’s current economic climate is very similar to April 2024, when China and Chinese stocks experienced a significant rally. “There is indeed renewed hope for stimulus (mainly because of the recent rate cuts), the position is quite light, and the Fed’s 50bps cut could allow the PBOC to be more aggressive,” Barclays equity derivatives strategist Anshul Gupta said in a note to clients on 24 September According to Barclays, UK-based insurer Prudential, cosmetics giant L’Oreal, carmaker BMW and Mercedes, and miner Rio Tinto are among the top European stocks that could benefit from China’s stimulus efforts. All five stocks are also traded in the U.S. The companies were selected based on their high exposure to the Chinese market, low volatility scores, significant upside potential, and underperformance to date. For example, Barclays’ price target for Prudential plc suggests a 114% increase in the share price over the next 12 months. However, the stock is down more than 20% this year, partly due to exposure to China. China’s new economic challenges have become apparent, as the country has experienced its longest deflation since 1999. However, economists suggest that interest rate cuts alone will not be enough to revive China’s economy. Larry Hu, chief China economist at Macquarie, stressed the need for additional fiscal support and efforts to strengthen the housing market. “The most likely path to reflation, in our view, is through fiscal spending at home, financed by the PBOC’s balance sheet,” Hu added. – CNBC’s Michael Bloom and Evelyn Cheng contributed reporting.
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