Barclays Wealth Advises Clients to Use 'Barbell' Strategy

NEW YORK, July 7 /PRNewswire/ -- Barclays Wealth July Compass investment calls include:

• Consider Favoring Government Bonds and Developed Market Equities

• Look at Euro-Sensitive European Equities

• Explore Korean Equities

Create a Barbell Portfolio for Two Radically Different but Equally Likely Outcomes

Barclays Wealth sees two equally likely but radically different trajectories for the global financial markets in the next year: one quite good and the other very bad.

• The good scenario:  We project that if the global economy continues to recover, even just gradually, then returns on risk assets, especially those tied to the performance of public companies, are likely to be high. Corporations have been generating profits even amidst only slowly-growing demand. Solid growth in the emerging economies would support commodities prices, and continuing employment growth would support the commercial real estate market. In this scenario, the recent decline in prices of risky assets equates to more upside.
• The bad scenario: We believe there are equally good reasons to be worried that growth will falter. Of greatest concern is the failure of US private sector employment growth to pick up. It will be hard for the global economy to continue expanding unless US consumers start realizing some income growth and spending more. In our current situation the downside economic outcome could be very bad. Economic policymakers have no ammunition left to deal with the situation if growth slows substantially near-term or another recession begins. This could mean a deflation trap or prolonged period of economic weakness – 'lost decade' – leading to losses totaling dozens of percentage points on risky investments.

Aaron Gurwitz, Chief Investment Officer, said: "We recommend a barbell portfolio, part of which will do very well in the upside scenario and part of which will do well in the lost decade. (1) Stay overweight equities, to a reduced extent, with a preference for developed markets. (Corporate profits are growing strongly; creditworthiness is improving; interest rates are likely to stay low; and valuations of developed market equities look undemanding.); and (2) Add exposure to assets, such as government bonds, that will perform in a deflationary climate."

Buy Euro-Sensitive European Equities

Euro-sensitive European equities are now one of our preferred markets. Barclays Wealth expects the euro to remain weak. To position portfolios to benefit from this weakness, investors should consider increasing exposure to European export-oriented companies.

Brian Nick, Investment Strategist, commented: "European companies that enjoy a high level of overseas earnings are likely to benefit the most from the euro's weakness. Historically, those sectors have been information technology, oils, materials, consumer goods and industrials. By contrast, the worst performing sectors during periods of currency weakness have been consumer services, utilities and financials. We reiterate our overweight position in European information technology and industrials stocks."

Buy Korean Equities and Leave Currency Exposure Unhedged

The combination of a global bout of risk aversion and geopolitical worries stemming from a North Korean naval attack have pushed down Korean equities to a valuation level one standard deviation below the long-term mean. Separately, the Korean Won continues to be inexpensive on valuation grounds – even more so after falling over 10% from early May. On the other hand, the underlying South Korean economy remains sound.

Michael Crook, Investment Strategist commented: "Korean companies' earnings momentum is no doubt slowing somewhat from its earlier explosive phase, and North Korea continues to keep geopolitics on the boil, but we think these risks are substantially outweighed by the factors supporting the upside. We recommend considering Korean equities and leaving the currency exposure unhedged."

About Barclays Wealth

Barclays Wealth is a leading global wealth manager, and the UK's largest, with total client assets of $241 bn (151.2 bn pounds Sterling) as at December 31, 2009. With offices in over 20 countries, Barclays Wealth focuses on private and intermediary clients worldwide, providing international and private banking, investment management, brokerage and fiduciary services.

Barclays Group is a major global financial services provider engaged in retail and commercial banking, credit cards, corporate banking, investment banking, wealth management and investment management services with an extensive international presence in Europe, the Americas, Africa and Asia.

With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over 144,000 people. Barclays moves, lends, invests and protects money for over 48 million customers and clients worldwide.

For further information about Barclays Wealth, please visit our website www.barclayswealth.com.

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Barclays Wealth is the wealth management division of Barclays Bank PLC, functioning through Barclays Capital Inc. in the United States. Barclays Capital Inc., an affiliate of Barclays Bank PLC, is a U.S. registered broker-dealer and regulated by the Securities & Exchange Commission. Member SIPC.

SOURCE Barclays Wealth