Barclays has today released its latest tactical recommendations to portfolio asset allocations, in its recently published “Compass” report. Barclays’ Wealth and Investment Management research focuses on providing investment advice and recommendations to investors across the globe, including the MENA region.
The Q4 2015 Compass states that the global economy is expected to accelerate over the final quarter of the year, with an increasingly buoyant US private sector at its heart. Barclays’ strategists believe that trends in consumption and investment are comparable with pre-crisis trends in the world’s most important capitalist economy. Furthermore, incoming data on Europe continues to suggest that economic recovery is strengthening, with the sustained improvement in the credit backdrop providing helpful conditions.
The report also highlights key investment advice for investors recommending a tactical ‘overweight’ in developed markets equities based on the expectation of an increase in global economic growth. Additionally, the report recommends a decrease in the portfolio allocation to cash and short maturity bonds, moving from its previous ‘strong overweight’ recommended during the previous quarter to an ‘overweight’, thus releasing funds to take advantage of the drop in equity prices.
Vic Malik, Head of Global Investments and Solutions for the Middle East and North Africa (MENA) at Barclays Wealth and Investment Management, explains: “When it comes to our portfolio management, we incrementally raise or reduce our positions to take advantage of short term market movements. In the long term, we still maintain that the US and European economies will remain strong, which will positively impact the emerging markets. During this period while markets are correcting, we recommend putting cash to work to acquire quality assets at fair prices, especially developed market equities which provide a good entry level for investors.”
Barclays also maintains an ‘underweight’ to emerging markets currencies, emerging markets debt (in local currency terms, in particular), emerging markets equities and commodities in the Q4 2015 Compass, as the bank is mindful that these assets are taking the brunt of the strength in the US dollar.
Malik continues: “Since we already have a low allocation to commodities, the recent poor performance of this asset class had limited impact on portfolios following the recommendations of our strategists and experts. As for emerging market equities, during the early summer when markets were performing positively, we reduced our equity exposure as we believed that it was an ideal time to take profits following a period of strong gains. Therefore, it also had a limited impact on portfolios during the recent market turbulence driven by China.”
“Given the slowdown in global growth, sensitivity to reduced commodity prices and the effect of the US dollar strength, emerging markets have experienced a tough 2015. In the short term, uncertainty still surrounds emerging market assets; however, from a strategic perspective, we recommend owning some of these stocks and bonds due to emerging markets’ demographics, economic growth and share of global GDP.”
“With that said, we have assigned emerging markets equities an ‘underweight’ since the early part of this year, given their growth is slowing from a high level, compared to developed markets which are improving from a low level. Given our view that the direction of travel is more important than the actual level of growth, we maintain our preference for developed markets equities.”
The report also discusses China and how many are predicting that the Chinese economic slowdown will drag the world economy down with it. However, if as Barclays’ strategists expect, the US economy accelerates into the end of the year – with a consumer buoyed further by a strong jobs market, rising real wages, low gas prices and an easing credit backdrop among other things – the resulting economic warmth will spread in varying lags to emerging markets.
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