Barclays Wealth Advises Buying Japanese Exporters and Commodities, Preparing for Interest Rate Hikes

NEW YORK, March 3 /PRNewswire/ --

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Japanese equities have struggled, but stocks of exporters look attractive

Japanese exporters are likely to benefit from the global economic recovery as well as the expected depreciation of the Japanese Yen. Although we remain unexcited about Japanese equities overall, we believe that Japanese export stocks can continue to outperform. We suggest that investors implement this view via a basket of currency–hedged export stocks.

Investors should prepare portfolios for interest rates rises

Our expectations for money market rates at end-2010 are now above those priced into the market. Central banks are still unlikely to raise official rates until the end of the year, but three-month money rates could rise sooner, and by more than the market expects. Within the portion of investors' portfolios devoted to liquid, cash-like investments, we would start to move back towards traditional money-market instruments or possibly floating-rate notes, and away from short-dated government bonds.

Buy a diversified portfolio of commodities

The sharp sell-off in commodities in January notwithstanding, we continue to recommend buying a diversified portfolio of commodities. First, we expect commodity demand from Emerging Markets, particularly China and the rest of Emerging Asia, to continue growing in 2010 as the economies grow. Second, by historical standards, commodity prices have not recovered at anywhere near their usual pace relative to equity prices. Finally, commodities have historically been negatively correlated with equities in times of heightened geopolitical risk.

Investors should generally remain overweight equities.  Lower-composure investors might consider adding some protection to portfolios

We believe that the renewed bout of market nerves will likely prove temporary and do not recommend that investors restructure their core portfolios. For lower-composure investors – those who are likely to reduce portfolio risk sharply after losing money and then wait too long to reinvest – a strategy of hedging, using index put options, can help reduce volatility in a cost-effective way.

Kevin Gardiner, Head of Investment Strategy, Europe, Middle East & Africa, at Barclays Wealth, said:

"The rebound in volatility and risk aversion is not yet alarming. The global economy appears less fragile than we'd feared. One of the risks highlighted by economists with regard to US growth has been the continuing fragility of the labor market but recent data are encouraging. Meanwhile, corporate profits have been outpacing expectations."

Aaron S. Gurwitz, Head of Global Investment Strategy at Barclays Wealth, said:

"The S&P 500 generated an average annualized total return of about 16.5% between March 2, 2003 and October 10, 2007. During this time there were five episodes in which the S&P declined by 5% or more. These events were relatively insignificant corrections – all of which were followed by new highs; however, the next decline in the index totaled 56.3%.  Given the sell-off in the market in mid-January, we understand some investors are concerned. One solution is the systematic policy of purchasing put options to limit the potential downside."

Elizabeth Fell, Fixed Income Strategist, Americas, said:

"Since early 2009, we have been recommending that investors' liquid reserves – funds that will be used for investments or purchases in the medium term – should be invested in high-quality fixed-rate securities with maturities between one and three years. We now believe that the yield of these securities is not high enough to compensate for the risk of a decline in their market value with rising interest rates. We recommend investors move their liquid reserves into money market funds, short-term bank deposits or even high grade floating rate notes with one- to three-year maturities."

Brian Nick, Investment Strategist, Americas, said:

"We fully expect China and the rest of Emerging Asia to continue to grow impressively in 2010, even in the face of possible financial tightening. We believe commodities will benefit from this growth."

About Barclays Wealth

Barclays Wealth is a leading global wealth manager, and the UK's largest, with total client assets of $241 (pounds Sterling 151.3bn) as of 31 December 2009. With offices in over 20 countries, Barclays Wealth serves affluent, high net worth and intermediary clients worldwide, providing international and private banking, investment management, fiduciary services, and brokerage.

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

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

Twitter page: www.twitter.com/barclayswealth

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