Barclays Wealth Advises Clients to Buy British Pound, Short Japanese Yen

NEW YORK, May 6 /PRNewswire/ --

Barclays Wealth 'Compass' investment calls for May include:

• Still positive on stocks and high-yield corporate bonds
• Buy the British pound; short the Japanese yen
• Don't be worried about inflation. But if you are, consider distressed debt and stocks of companies with pricing power
• U.S. taxes will go up at year end: Consider selling low-basis holdings

Recommendations

Remain positive on stocks and high-yield credit

The macro debate has shifted materially in recent weeks. The European sovereign credit crisis has distracted investors from the fact that consensus growth forecasts continue to trend higher. This is augmenting what was already a substantial projected rebound in corporate profits, and is pointing-up the difference between corporate and government creditworthiness. We stay positive on stocks and (high-yield) corporate credit.

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

"We are generally positive on corporate assets globally. Valuations still look inexpensive in the case of equities and high-yield credit."

"We think the U.S. equity market is trading on a plausible price-to-earnings ratio for 2010 of roughly fifteen, which is ten percent to fifteen percent below what we think is the relevant trend. Moreover, as risk appetite returns, institutional investors may revert to a valuation tool such as discounted cashflow, which would make stocks look more attractive still."

Gardiner continued, "In high yield credit, spreads are narrower but still well above pre-crisis levels."

Go Long Sterling and Short the Japanese Yen

The British pound is weak because of uncertainty over the implications of the May 6 general election, and because of an unpleasant mix of stagnant growth and higher-than-expected inflation. But we think that inflation will be contained, and believe that a "hung" parliament is unlikely to lead to a prolonged fiscal impasse.  Conversely, we think that the yen will be hurt by rising global interest rates and by higher commodity prices. We therefore recommend clients establish long positions in sterling against the Japanese yen.

Brian Nick, Investment Strategist, commented: "While sterling could fall further in the immediate aftermath of the election, particularly if the outcome is indecisive, we expect the currency to move higher in the ensuing six months. The reason we are recommending the currency at this time is that in the event of a clear and positive election outcome, sterling could move higher quickly."

Nick continued: "Our negative view on the Japanese yen is long-standing. Japan's economy is among the weakest in the developed world, with deflation still a very real concern and more quantitative easing measures likely on the way. Higher commodity prices should also hurt the yen, as Japan is a net importer of most commodities."

For Inflation Hedges: Consider stocks, real estate credit

While Barclays Wealth is not concerned about inflation, many investors are.  Gold and inflation-linked bonds are seemingly obvious inflation hedges that may not actually perform well in times of high inflation.  Instead, investors should consider: A diversified portfolio of commodities and distressed debt funds; stocks of companies with pricing power, such as regulated utilities and well established brands; and actively managed real estate credit in asset-backed and mortgage-backed securities.

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

"Companies with 'pricing-power' are able to pass higher input costs on to their customers, and look likely to outperform the stock market as a whole during inflationary periods. Many of these companies fall into two broad stock market sectors: regulated utilities and companies that own well-established brand names."

"Higher inflation rates will tend to enhance real estate owners' ability to service debt and raise post-foreclosure residual values. For these reasons, we recommend actively and expertly managed investments in asset-backed and mortgage-backed securities for investors concerned about inflation."

Taxes are going up so deal with it now

US tax rates on investment income will be increasing on January 1, 2011 and then again two years later.  In light of that, investors should: (1) review their portfolios for long-term capital gains that are best realized before tax rates go up; (2) recalculate after-tax yields on corporate and municipal bonds and restructure their portfolios accordingly; (3) reconsider investment strategies, such as Master Limited Partnerships, that postpone the realization of ordinary income.

Elizabeth Fell, Fixed Income Strategist, Americas, said: "Investors who have held off selling investments with a low tax basis should consider selling because the long-term capital gains rate will probably never be lower than it is now."

"As effective tax rates increase to 39.6% and 43.4%, we expect that, for investors in the highest tax brackets, the after-tax yield of municipal bonds will be better than that of corporate bonds."

About Barclays Wealth

Barclays Wealth is a leading global wealth manager, and the UK's largest, with total client assets of $241 (151.2bn pounds Sterling) as of 31 December 2009. With offices in over 20 countries, Barclays Wealth focuses on private 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