Barclays

In this month's Compass we look again at our fourth quarter investment strategy and discuss the outlook for the global economy

Barclays Wealth 'Compass' investment calls for November/December include:

• Tactical asset allocation: Government bonds preferred in Q4
• Buy Korean, Chinese, Taiwanese equities
• Investment in high quality Turkish lira-denominated debt is recommended

Aaron S. Gurwitz, Chief Investment Officer at Barclays Wealth, said: "With further fiscal stimulus off the table for political or market reasons, and with short-term investment rates already at zero, quantitative easing is the only weapon left in policymakers' arsenals.

"We'd be happier to see growth reaccelerate without any additional help from policymakers, but until then we remain sceptical and concerned that the developed economies' weakness will linger, government bond yields will fall further, and the emerging economies will continue to be the principal wellspring of attractive risk-adjusted returns.

"Therefore, we continue to urge investors not to alter their investment strategies radically. Further, we recommend that investors include an allocation to long-term government bonds in their asset mix and seek out investments - in all regions and in all asset classes - that provide exposure to economic growth in the emerging markets."

In light of this, Barclays Wealth has made the following recommendations:

Tactical asset allocation: Bonds preferred in Q4
Our recommended tactical asset allocation for the fourth quarter, as presented in October's ‘Compass', favours developed government bonds, largely at the expense of cash. Our equity overweight - the recovery component of our previous "barbell" tactic - was cut to neutral, with a small overweight in emerging markets balanced by an equal underweight in developed markets.

Kevin Gardiner, Head of Global Investment Strategy, said: "This positioning reflects our increased concern that the global economic recovery will remain lacklustre at best. However, it also reflects more market-orientated developments - namely the fact that equities have enjoyed a very strong run, flattered by anticipation of the Fed's boosted quantitative easing programme. This has left stocks, in our view, tactically short of headroom - and the Fed's special measures are much more likely, in practice, to support bonds."

Buy Korean, Chinese, Taiwanese equities
Earlier this year, we recommended buying Korean equities (see the July edition of ‘Compass'), and many of the factors behind our original call are still firmly in place - the Korean equity market and the Won remain firmly undervalued, and economic data remains robust. We now recommend extending this idea and adding Chinese and Taiwanese equities as well.

Manpreet Gill, Asia Strategist, said: "Relative valuations make a convincing case to favour North Asian over South and South Eastern Asian equities. Extending this approach to other indicators, and to the wider emerging markets space, leads us to the same conclusion - on a broad range of indicators that include valuations, earnings momentum, monetary policy and growth expectations, North Asian equity markets score higher than the largest emerging markets in other regions."

Invest in high quality Turkish lira-denominated debt
We recommend an investment in high quality Turkish lira-denominated debt because of the high yields which are available on it, and (in our view) the limited downside risk for the currency. We think that strong domestic economic growth and external factors will likely underpin the lira. The yield on two-year Turkish lira-denominated sovereign debt is currently over 7.5%, while AAA-rated Turkish lira-denominated debt of the same maturity issued by supranationals is yielding over 7%.

For further information contact:

Will Bowen, Barclays Wealth, Corporate Communications
+44 (0)20 3134 7744

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