'More signs of recovery' says Barclays Wealth Monthly Strategy Update.
Our Investment Themes
• Financial markets closer to fair value.
• Asia is the most economically dynamic global region.
• Short-term interest rates to stay low.
• Inflation is not the problem; inflation expectations could be.
• Downside macroeconomic risks should not be totally dismissed
Our Macro View
• More and more evidence is accumulating to suggest that the decline in economic activity is coming to an end.
• Emerging markets are leading the way. Purchasing Managers’ Indices (a measure of business confidence) are back above 50 in China.
• We expect a weak recovery in US growth next year. Elsewhere in the developed economies, the prospects are for even more modest growth. The UK stands to do a little better than the Euro area or Japan.
• Commodity prices may rise further, increasing inflation fears. But we forecast that global inflation to run at only about 2% next year, close to its 2009 level.
Our Investment Calls
1) Increase portfolio risk levels to strategic norms. In many cases, this will involve increasing portfolio risk by adding to equity holdings.
2) Maintain investments in corporate bonds. Credit market conditions have improved but still reflect an extremely pessimistic economic outlook.
3) Add or maintain investments in Asia. An allocation to Asia should include an investment in Japanese stocks. The Japanese economy is becoming increasingly integrated into the larger, dynamic Asia story.
4) Underweight European and US stocks within global equity portfolios. Within Europe overweight the German market. The German export economy has emerged as one of the most dynamic in Europe and many German companies export to Asia.
5) Increase investments in commodities. Corn and soy beans look particularly attractive over a two or three year horizon. This recommendation can also be seen as part of the over Asia story.
Aaron S. Gurwitz, Head of Global Investment Strategy at Barclays Wealth, says 'The great springtime global equity market rally of 2009 is now fading. The rally had reflected growing confidence that the global economy was not headed for a recession. That process is now apparently complete. We remain optimistic for financial markets overall in the medium term, but suggest some caution for the next quarter or so.'
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Pictured: Aaron S. Gurwitz, Head of Global Investment Strategy at Barclays Wealth
