Investors should shift incrementally toward a more defensive portfolio
since fixed income and equity returns are unlikely to be as uniformly
positive in the second half of the year, according to Barclays’ latest
flagship quarterly research publication Global Outlook: A more
defensive portfolio. The rise in US inflation is a major risk that
financial markets have not yet priced in. As a result, investors should
decrease their allocation to global fixed income, add cash in US dollars
and overweight US inflation-linked bonds.
“We are less sanguine about the market outlook over the next six
months,” said Jim McCormick, Head of Asset Allocation Research. “US
inflation is picking up just as global fixed income yields have fallen
sharply. At the same time, many credit spreads have returned to their
2007 lows while some equity markets, most notably the US, look a little
bit stretched.”
The good news for investors is that after a weak start to the year, the
trend in global growth in the second half should be better than at any
time in the past 2-3 years. Barclays’ global GDP forecast envisions 4%
growth in H2, compared with just 2.6% in H1. Any upside surprises on
growth are more likely to come from outside the US.
We maintain our modestly bullish call on equities and recommend shifting
exposure away from the US towards the European periphery, Asia and
Emerging Markets.
Other recommendations in the Global Outlook include:
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We have moved to tactically and strategically overweight oil.
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We hold our credit allocation broadly unchanged, with overweight in
emerging markets, neutral in high yield and underweight in investment
grade.
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We maintain our overweight in emerging markets equity, local currency
debt and USD-denominated debt.
-
We exit our long-standing overweight in European peripheral bonds and
re-enter an underweight euro FX allocation.
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In Japan, overweighting equities against bonds is most attractive in
the post-bubble period, according to the real yield gap.
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 is an international financial services provider engaged in
personal banking, credit cards, corporate and investment banking and
wealth management with an extensive presence in Europe, the Americas,
Africa and Asia. Barclays’ purpose is to help people achieve their
ambitions – in the right way. With over 300 years of history and
expertise in banking, Barclays operates in over 50 countries and employs
approximately 140,000 people. Barclays moves, lends, invests and
protects money for customers and clients worldwide. For further
information about Barclays, please visit our website www.barclays.com.
Copyright Business Wire 2014