'Despite Middle East Turmoil, Investing Environment Remains Benign — For Now', Barclays Wealth Says

Mar 03, 2011, 08:00 ET from Barclays Wealth

NEW YORK, March 3, 2011 /PRNewswire/ --

Barclays Wealth's investment calls for March include:

  • Consider adding exposure to higher energy prices / equity market volatility to hedge political risk
  • Hold more developed equities than usual to benefit from continuing global, non-inflationary growth
  • Use setbacks to shift portfolios in this direction
  • Retain a small overweight in high-quality government bonds as portfolio insurance

Aaron S. Gurwitz, Chief Investment Officer, said: "Global economic news has been steadily improving, and economic statistics continue to surprise on the upside.  Turmoil in the Middle East raises the general level of investment risk, of course, but thus far we haven't reached the point at which much higher energy prices turn the current investing environment far less benign. That point would come if unrest spread to one or more of the GCC region's major oil producers."

Kevin Gardiner, Head of Global Investment Strategy, said: "While we're keeping a close eye on potential investment risks—the Middle East and the bond market's skittish behavior in the face of high UK and European inflation—we reiterate our stance for investors to position their portfolios to benefit from continuing global, non-inflationary growth and strong corporate earnings performance. Higher interest rates are probably still some months away and the turning point is not likely to involve a change in market direction."

In light of this, Barclays Wealth's investment recommendations for March include:

Hold more developed market equities than usual

  • Economic recovery will support profit growth and valuations remain attractive relative to bonds. In absolute terms, price-to-earnings ratios remain lower today than at start of 2010 because of earnings growth.
  • Higher interest rates are still some months off. Historically, a turning point in interest rates does not usually involve a change in market direction. Stock markets rarely peak at this stage in the cycle.
  • We favor US and Continental Europe equities, where we believe investors' views on corporate recovery will see the biggest upgrades, and recommend focusing on cyclical sectors including Energy, Industrial and Technology.

Consider hedge to Middle East unrest

  • We recommend investors consider adding exposure to higher energy prices and/or heightened equity market volatility as a hedge against the risk that unrest in the Middle East does reach a tipping point.

Favor emerging equities

  • The case for long-term investing is still appealing.  Asia, particularly China, Taiwan and South Korea, remains our favorite emerging region due to its faster trend growth, more diversified markets and better corporate and political governance.
  • While a tightening monetary policy in China has raised concerns about a hard landing to recent economic growth – below the trend of 7% GDP growth – we believe that growth will remain above 7% and that Chinese equities remain compelling, particularly on a historical price-to-earnings basis.
  • Over the past two decades, medium term growth in China has been driven by the government's five-year plans.  The current plan is focused on developing domestic demand.  Key industries include: bio technology, new energy and new energy cars.

Allocate to high yield and emerging market bonds

  • This asset class offers 7% yield and some exposure to the ongoing recovery in corporate creditworthiness.

Developed government bonds

  • Our small overweight position in high quality government bonds should be viewed as portfolio insurance.

About Barclays Wealth

Barclays Wealth is a leading global wealth manager, and the UK's largest, with total client assets of $254bn (164bn pounds Sterling), as of December 31, 2010. 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 is a major global financial services provider engaged in retail banking, credit cards, corporate and investment banking and wealth management 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 147,500 people. Barclays moves, lends, invests and protects money for customers and clients worldwide

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

Barclays Wealth, the wealth management division of Barclays Bank PLC (BBPLC), functions in the U.S. through Barclays Capital Inc., a BBPLC affiliate.

SOURCE Barclays Wealth