Barclays Wealth, the global wealth management institution, announced today its monthly research providing a set of investment recommendations for investors all around the globe. The July “Compass” edition from Barclays Wealth provides a set of recommendations based on quantitative as well as qualitative research. Investment recommendations for the month of July include tactical asset allocation along with investment calls for investors to buy euro-sensitive European as well as Korean equities.
Tactical Asset allocation –
Investors’ expectations are polarised, and likely to stay so through the summer at least. We are reshaping our recommended Tactical Asset Allocation to reflect this continuing polarity. We want to retain some exposure to pro-cyclical risk assets such as equities. But at the same time, we want some exposure to assets that will perform in a deflationary climate, and are now raising government bonds to an overweight. To fund the resultant “barbell” strategy we have extended our underweight in cash, and reduced also our weightings in other “in between” assets such as corporate bonds.
On the subject, Kevin Gardiner, Head of Global Investment Strategy, said:
“We want some added exposure to assets that will perform in a deflationary climate. Alongside a continuing, though reduced, overweight in equities, we now raise government bonds to an overweight, even though they have already performed well. To fund the resultant “barbell” strategy, we have extended our underweight in cash, and reduced our weightings in other “in between” assets such as corporate bonds - though we retain a small overweight in high-yield credit.”
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Gardiner continued “Though unconventional, such portfolio strategies can perform at a time when the collective investor mood is lurching between extremes by owning both pro-cyclical and deflationary beta.”
Buy Euro-Sensitive European Equities
European equities are now one of Barclays Wealth preferred markets, partly because we expect the euro to remain weak for some time – one of the adjustment mechanisms for the European economy. We, at Barclays Wealth, believe that investors should position portfolios to benefit from the weakness of the currency; a strategy that favours increasing exposure to export-oriented companies.
Dean Turner, Equity Investment analyst, commented: “Those companies that enjoy a high level of overseas earnings are likely to benefit the most from the weakness of the euro. Historically, the best performing sectors during periods of currency weakness have been information technology, oils, materials, consumer goods and industrials. The worst performing sectors have been consumer services, utilities and financials. Our current sector recommendations are for overweight positions in information technology and industrials within Europe and on the basis of this analysis we would re-emphasise that call.”
Buy Korean Equities
It is not common to find an economically-sound market where both the equity market and the currency are inexpensively valued. In Korea, we may have both. A combination of a global bout of risk aversion and worries stemming from a North Korean naval attack have pushed down Korean equities to a valuation level one standard deviation below its long-term mean. The Korean Won continues to be inexpensive on valuation grounds – and now even more so after falling over 10% from early May on geopolitical concerns.
Manpreet Gill, Asia Strategist commented “We do not ignore the risks – we’re cognisant of the fact that this investment idea is very firmly in the pro-cyclical camp and is dependent on a continued global recovery. We do believe, however, that this is the right idea to add to the risky end of a barbell strategy.”
