Barclays Advises Investors to Continue Moving out the Risk Curve
Global Outlook report recommends a continued shift in positioning from
overvalued “safe” assets into somewhat riskier investments
NEW YORK & LONDON -- December 13, 2012
Aggressive monetary policy measures are reducing the systemic risks and
ensuing swings in investor positioning that have dominated markets since the
start of the great recession, according to Barclays latest flagship quarterly
research publication, Global Outlook: Moving away from risk on/risk off.
However, significant fiscal tightening and associated business uncertainty
across the major developed economies, as well as structural changes in Europe,
will continue to hold back growth in early 2013.
“Upbeat financial market performance reflects the unprecedented commitment by
major central banks to support asset prices and push risk free interest rates
to record lows,” said Larry Kantor, Head of Research. “This is creating highly
liquid market conditions and is forcing investors to move gradually out along
the risk curve to achieve a reasonable return.”
During the past year, investor concern about systemic risks – from euro area
dissolution, to China’s hard landing and a financial system collapse – has
faded considerably. This is leading asset prices to be driven less by macro
developments and more by asset-idiosyncratic considerations as well as
return-seeking flows into the next not-too-risky asset class.
As these risks have been contained, a new one has emerged: fear of a
significant market correction as a result of lack of progress on the US fiscal
cliff. According to the Global Outlook, the most likely outcome will be
another “kick the can down the road” agreement that will avoid massive
near-term spending cuts and tax increases, but will not produce a
comprehensive deficit reduction plan that would put the US on a fiscally
sustainable path and be constructive for markets and growth.
For the first time since the crisis began, European policymakers have managed
to get one step ahead, with European governments and institutions reconfirming
their commitment to the Euro project and beginning to put in place aggressive
policy measures. While Euro dissolution risks may well resurface down the
road, they are not likely to be significant over the next several months.
China has successfully adjusted to a lower trend growth rate, and policymakers
are driving a significant shift in income distribution towards households and
away from businesses. While this means China will not play the same locomotive
role globally, it will make Chinese expansion more politically as well as
economically sustainable and the global economy less exciting but more stable.
Recommendations in Barclays Global Outlook include:
*Underweight fixed income in developed markets
*Favor high yield over investment grade credit and expect US
financials to outperform industrials
*Overweight equities in developed markets
*Balance allocation to the relatively low-risk US with positions in
Europe and Japan
*Overweight emerging markets external and local debt
*Do not overweight emerging markets equities generally, given limited
prospects for growth acceleration and FX appreciation
*Buy gold against the yen – gold is the one commodity which may receive
some support from central bank actions and we expect the yen to depreciate
by as much as 10% in response to easier monetary policy from the Bank of
Barclays Global Outlook research report, published quarterly, provides an
assessment of all major economies and outlines the likely implications for
global financial markets, including commodities, credit, economics, emerging
markets, equities, fixed income and foreign exchange.
Barclays moves, lends, invests and protects money for customers and clients
worldwide. With over 300 years of history and expertise in banking, we operate
in over 50 countries and employ over 140,000 people. We provide large
corporate, government and institutional clients with a full spectrum of
solutions to their strategic advisory, financing and risk management needs.
Our clients also benefit from access to the breadth of expertise across
Barclays. We’re one of the largest financial services providers in the world,
and are also engaged in retail banking, credit cards, corporate banking, and
wealth and investment management. Barclays offers premier investment banking
products and services to its clients through Barclays Bank PLC. For more
information, visit www.barclays.com
Erica Chase, +1-212-412-6830
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