Barclays Wealth Advises It Is Not Too Late For Equities

NEW YORK, Feb. 3 /PRNewswire/ -- Barclays Wealth investment calls for February include:

• EQUITIES ARE STILL ATTRACTIVE DESPITE RALLY SINCE MARCH 2009; CHOOSE DEVELOPED MARKETS OVER EMERGING MARKETS, GIVEN VALUATIONS

• CONSIDER CONVERTIBLE BONDS AS A WAY TO GET EQUITY EXPOSURE

• BUY A BASKET OF EMERGING MARKET CURRENCIES VS. DOLLAR

• CONTINUE TO SHORT GOLD

Recommendations

Investors Should Stay Overweight Equities

It's not too late to be adding to equity positions – even though the global equity market has now rallied more than three fifths, in local currency terms from its March 2009 lows and there is revived uncertainty regarding financial regulation, the pace of global monetary tightening and possible spill-over effects from the Greek bond market. In our view, equities should be both an overweight in balanced portfolios and the first port of call for investors wishing to diversify away from cash.  Three reasons underpin our call:

1. The vigorous V-shaped recovery in corporate profits with cost cutting being slowly augmented by resumed modest top line growth.
2. Short–term interest rates are unlikely to start rising soon and investor liquidity remains high.
3. Even after the rally, equities do not look overly expensive on a forward P/E basis – partly because of the profits rebound, but also because equities fell such a long way to begin with.

• Investors should choose developed markets over emerging markets, given valuations.

Look at Convertible Bonds as Way to Get Equity Exposure

Convertible bonds offer investors with lower composure a high-yield, lower volatility way of gaining equity exposure. They remained less volatile than equities during the crisis. On a Sharpe ratio (excess return over cash per unit of risk) basis, they outperformed equities over the past two years. Moreover, on high-yield convertibles, yields remain elevated compared to those of equity dividends.

Buy a Basket of Emerging Market Currencies

Growth in emerging market economies is expected to outpace that of developed economies over both the short and longer terms.

• Buy a basket of emerging market currencies (South African Rand, Brazilian Real, Korean Won, Indian Rupee, Indonesian Rupiah, Polish Zloty) vs. dollar, euro, yen. The emerging market currencies offer attractive interest rate carry, further appreciation potential, or a combination of both.

Continue to Short Gold

We believe that gold is now significantly overvalued relative to fundamentals.

• Investors should short gold in a way that limits possible losses as overvaluation may not correct immediately. Potential strategies include buying long-dated put options on one of the gold-based ETFs or a structured note.  

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

"Our preferred assets remain equities; our least favorite are long-dated government bonds and cash. Somewhere in the middle are corporate and short-dated government bonds. A theme that runs across both the equity and fixed income portions of our recommended core portfolio is that in 2010, developed markets may offer better returns than the emerging world where valuations look relatively full and profit growth is (temporarily) no higher than in the recovering developed bloc."

Elizabeth Fell, Investment Strategist, Americas, said:

"The improving macro-economic backdrop, continued accommodative monetary policy and increasing risk appetite should support demand for products offering equity exposure. As the risks of central banks beginning to tighten monetary policy approach, yield might become more attractive. Convertible bonds score on both points. Moreover, if the short term uncertainties regarding the banking sector continue, convertibles should see less volatility than equities."

Brian Nick, Investment Strategist, Americas, said:

"We expect emerging market economies to continue to outgrow the developed world over the next several years, and many emerging market currencies are attractively valued and offer significant interest rate carry. Governments in Emerging Asia and Latin America, for example, should continue to tolerate stronger currencies as their economies become increasingly driven by domestic demand."

About Barclays Wealth

Barclays Wealth is a leading global wealth manager with total client assets of $221 bn (134bn pounds) as of 30 June 2009. With offices in 25 countries, Barclays Wealth serves affluent, high net worth and intermediary clients worldwide, providing international and private banking, investment management, fiduciary services, and brokerage.  For further information about Barclays Wealth, please visit our website www.barclayswealth.com.  Twitter page: www.twitter.com/barclayswealth

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.

Barclays Wealth is the wealth management division of Barclays Bank PLC, functioning through Barclays Capital Inc. in the U.S. 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