Report by Aaron S. Gurwitz, Head of Global Investment Strategy
This month's investment themes
1) Move past the crisis; 2) Position for economic recovery; 3) Seek diverse exposure to Asian economic growth.
The 'Macro' view of Barclays Wealth
Short-term interest rates will remain very low for a long time, but longer-term yields will likely start rising sooner.
Almost everywhere, economists are upping their growth forecasts for 2010. They are also exhibiting greater confidence in their predictions.
At the same time, emerging markets have been living up to their description – providing evidence of a quicker and more forthright recovery than their developed counterparts.
Policymakers are, however, reticent to show too much enthusiasm, pointing out that a number of headwinds will limit the pace of pickup.
This month's investment calls
1) Buy US small-cap stocks. While these tend to perform poorly on a relative basis in a downturn – for a number reasons – the inverse is generally true in an upturn, with small caps outperforming [the market]. Recently, European small caps have risen quickly, but US small caps have not.
2) Buy a diversified portfolio of commodities. After the unusually sharp fall of commodity prices during this recession, we expect a rebound. Rapidly growing Asian economies, which tend to be relatively heavy commodity consumers, are also expected to help exert upwards pressure on commodity prices.
3) Invest in inverse-floating-rate and capped-floating-rate notes. We think that monetary policy will be tightened in the major economies much more slowly than current market prices imply. These two types of notes offer an opportunity to benefit from this anomaly.
4) Buy 'first-to-tighten' currencies, specifically the Norwegian krone and Australian dollar. Although monetary policy is expected to tighten slowly in the major economies, interest rates could go up soon in Norway and Australia and perhaps by more than the markets expect. We are recommending that investors take positions that are long these currencies and short the US dollar, the euro, the yen or a combination of the three.
The bigger picture
"It's time to move beyond last year’s trauma and take a business-as-usual approach to investment decisions", says Aaron S. Gurwitz.
"That means, broadly, holding more stocks and fewer bonds than typical and having more exposure to asset classes and sectors that do better in early stages of recovery."
Kevin Gardiner, Head of EMEA Investment Strategy, adds, "There will be both tactical opportunities, due to current market mispricing being righted, and structural opportunities, connected for example with the rise of Asia.
"It is important to remember, however, that each economic cycle is unique; prices of some typical early sector winners, such as emerging market equities, high yield bonds, or European small cap stocks, already reflect the expectation of a recovery."
Brian Nick, Investment Strategist, concludes, "We see investment opportunities in both the commodity and currency markets.
"Commodity prices have not risen this year by as much as we normally see towards the end of a recession, so holding a diversified basket of commodities is a good way to position for continued recovery in global demand.
"We also see value in holding the currencies of countries that did not experience as severe a recession as their peers, and whose currencies stand to benefit as a result.
"In particular, countries boosted by commodity-related exports should continue to see their exchange rates appreciate."
