NEW YORK, Jan. 19 /PRNewswire/ -- Barclays Wealth investment calls for this month include:
Increase Exposure to Non-Cyclical, Laggard Sectors; Maintain Exposure to US Small-Cap, Mid-Cap Equities
Now that the most dramatic phase of recovery is over, markets are moving into a new 'mid-cycle' phase, where returns are in 'normal' range and investors are paying more attention to valuations, particularly in the sectors overlooked in the initial "recovery/relief" phase.
- Raise exposure to non-cyclical equities – Consumer staples (particularly, food, beverage and tobacco), pharmaceuticals and telecoms – through sector ETFs or actively managed funds with a "Growth at a Reasonable Price" style.
- Maintain exposure to the US small-cap and mid-cap sectors. We expect these stocks to make up for their atypically weak relative performance through the general market recovery to date.
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.
Seek to Benefit from a Gradual Renminbi Appreciation
The Chinese Renminbi (CNY) has been undervalued since the onset of the financial crisis, but looks set to appreciate in 2010. Neighboring currencies also look cheap and should benefit from a stronger CNY.
- We recommend buying the South Korean Won (KRW), Indian rupee (INR), Indonesian rupiah (IDR), Singapore dollar (SGD) and Taiwan dollar (TWD). Investing in local bonds could be an alternative, but local equities do not look cheap.
Position Portfolio to Take Advantage of Potential Increase in M&A Activity
We think Merger and Acquisition (M&A) activity will return. The two common factors that make transactions more likely are healthy corporate balance sheets and inexpensive borrowing. Borrowing is now easier and cheaper and most non-financial equity sectors do not look excessively leveraged.
- To benefit we recommend investing with merger arbitrage hedge funds or using active long-only managers that seek to exploit M&A activity.
Aaron S. Gurwitz, Head of Global Investment Strategy at Barclays Wealth said:
"The most dramatic phase of the recovery is over and markets have stabilized, and we believe it is now important to focus on investment strategies that are effective in "mid-cycle" periods. Our only remaining "early cycle" call is to maintain exposure to U.S. small-cap and mid-cap market sectors. Our recommendation that investors should position to benefit from an eventual decline in gold prices reflects our expectation that the 2010 environment will gradually reassure market participants."
Michael Crook, Alternatives Strategist said:
"We now believe that gold is significantly overvalued relative to fundamentals due to the impact of demand for gold-based ETFs, an overpricing of the "fear premium" and confusion over how monetary policy works in a zero interest rate environment."
Brian Nick, Investment Strategist said:
"We see a resumption of Chinese renminbi appreciation likely in 2010 given the growing pressures on the Chinese government to revalue. If and when the renminbi moves, the other governments in the region will be more comfortable allowing their own currencies to strengthen, so we think investing in Asian currencies broadly is attractive at this time."
About Barclays Wealth
Barclays Wealth is a leading global wealth manager, and the UK's largest, with total client assets of $221 bn (pounds Sterling 134bn) 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 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