The findings of the latest Barclays “Compass” report, which includes the Bank’s tactical recommendations to portfolio asset allocations, were recently announced. Published by the Barclays’ Wealth and Investment Management division, the research focuses on providing investment advice and recommendations to investors around the world, including the MENA region.

The Q4 2016 Compass, which examines major asset classes globally, has assigned an overweight allocation for Developed Markets Equities. Equities in the US are seen as the main source of returns for the next six to twelve months, since the negative impact of energy sector earnings and the decrease in profits as a result of higher US dollar, are anticipated to dissipate in the coming quarters. Equities in Continental Europe were given an overweight allocation, as they are expected to benefit from the negative outlook towards the European banking sector.

The Q4 report maintained a neutral allocation for Emerging Markets Equities since an upturn in earnings momentum is not clearly visible yet. As global trade is expected to pick-up, Asian equities are considered the preferred choice for this asset class, with a particular focus on Korea, Taiwan and China (offshore).

The Compass set a neutral allocation to Cash & Short- Maturity Bonds. Cash continues to play an essential role in safeguarding investment portfolios during the ongoing market volatility, as it is a source of funding to invest in other asset classes. Meanwhile, extreme valuations have negatively affected fixed income’s appeal.

In terms of Developed Government Bonds, the Q4 report highlighted a decrease in its allocation to neutral, due to the minimal yields on government bonds. Meanwhile, the report maintained an underweight allocation to Investment Grade Bonds, citing a similar reason to the Developed Government Bonds.

High Yield & Emerging Markets Bonds were increased to overweight, by adding to Global High Yield, as a result of the drop in the tactical overweight for Cash & Short-Maturity Bonds, to a neutral position. However, Barclays’ strategists and investment experts believe that Emerging Markets Bonds are expensive and remain vulnerable to a reversal of inflows during the sluggish monetary normalisation process.

As for Commodities, the report increased its long-held underweight allocation to neutral, citing the recovery in China’s property market, which was sufficient to offset the negative impact of US monetary normalization on commodities’ prices. According to the report, investors are likely to see better returns should they gear their investments towards oil, which is expected to continue to rise over the next 12 – 18 months. Meanwhile, gold continues to be vulnerable to an additional increase in US interest rates.

The Q4 Compass report also stressed the importance of maintaining a diversified portfolio to weather risks, in addition to having an adequate exposure to the Real Estate asset class, which retained its neutral weight.

Commenting on the report, Vic Malik, Head of Global Investments and Solutions for the Middle East and North Africa (MENA) at Barclays Wealth and Investment Management, said: “World economy is expected to continue to grow at a minimal rate, and as such, maintaining a diversified portfolio will be key to protecting investments from market volatility.

“Investment portfolios should be tactically tilted towards high risk assets, such as high-yield bonds and equities in developed markets. Despite the fact that bond yields will begin to recover slowly, as woes of currency deflation begin to subside, we don’t anticipate that the correction will be strong enough to impact the equity market’s weight”.

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