Barclays: Geopolitical tensions often present good buying opportunities

Investing.com - In a research report sent to investors on Friday, Barclays stated that investors should view the recent geopolitical tensions as a potential entry point and noted that the market remains supported by solid economic and earnings fundamentals.

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Analyst Emmanuel Cau wrote, “The tail risk between the US and Iran has increased, pushing up the oil risk premium,” but he added, “Underpinned by macro and earnings fundamentals, geopolitical tensions often present good buying opportunities.”

According to Barclays, volatility related to artificial intelligence has eased. Cau stated, “The AI frenzy has subsided,” although “growing caution in the tech sector continues to drive capital rotation into Europe.”

The bank pointed out that after a “volatile and unstable rotation in early February,” stock volatility has become more moderate, allowing dip buyers to re-enter.

Barclays noted that the bank previously warned that “the AI frenzy appears increasingly excessive,” and recent market movements suggest investors are beginning to reassess indiscriminate selling.

The bank emphasized that some areas of the market currently look tactically attractive. It stated, “Global tech sector valuations have been significantly compressed,” with relative valuation levels “at… the lowest post-pandemic levels.”

Despite ongoing concerns about AI-driven disruption and capital expenditure by large cloud service providers, the bank believes earnings momentum remains strong and the risk-reward ratio has improved.

These tech-related concerns are also thought to be driving capital rotation into what Barclays calls the “old economy/hard assets sector,” prompting continued fund flows from the US to other parts of the world.

EU stock markets have extended their lead since the beginning of the year, partly due to a rebound in sectors previously impacted by the earlier “AI panic.”

Looking ahead, Barclays believes that Nvidia’s upcoming earnings report will be a key catalyst, “which could deepen or alleviate the current uncertainty surrounding large tech stocks.”

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