(Bloomberg) -- A key driver of Europe’s record-setting equity rally is at risk of fading as companies pause buybacks ahead of reporting results and as France proposes higher taxes, according to Barclays Plc strategists.
Stock repurchases — which ran above average at €15 billion ($16.5 billion) in September — are set to dwindle this month and next given a requirement for firms to temporarily suspend programs ahead of earnings, according to a team led by Emmanuel Makonga.
“The blackout period is looming, which means support from buybacks should fade near term,” the strategists wrote in a note. “Higher taxes, as considered in France, is a bigger risk for buybacks,” they added.
The French government on Wednesday announced plans of around €60 billion in spending cuts and tax hikes next year in an effort to claw back a widening budget deficit and bolster investor confidence in the country. The Barclays strategists said France’s CAC 40 had so far delivered the second-largest buyback yield among European indexes of about 1.7% over the past year.
French oil major TotalEnergies SE’s board just pledged to continue a steady pace of share buybacks of $2 billion per quarter next year “assuming reasonable market conditions.” Banks, the top-performing sector in the region this year, have been heavy buyers of their own stock so far this year.
However, the so-called buyback factor has already been the worst-performing strategy for Stoxx 600 firms in the past month, according to data compiled by Bloomberg.
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