Barclays gives boost to developed equities

Barclays’ tactical asset allocation team has moved its recommendation on developed market equities to overweight from neutral.

The team, headed by Kevin Gardiner, chief investment officer, Europe, said the committee had raised its three-six month tilt on developed equities and had also cut its position on cash to overweight from strongly overweight.

“The move reverses the change made in mid-November: the recent volatility represents the sort of short-term setback the committee had in mind in making the earlier move and we see the business cycle and relative valuations continuing to favour stocks over most other asset classes in 2014 as a whole,” Mr Gardiner said.

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“Within developed markets, our preferred regions remain the US and Continental Europe, but we have lifted the UK to neutral from underweight, leaving developed Asia ex-Japan as an underweight.

“The chill in emerging markets may last a little longer, however: we stay no more than neutral on emerging stocks, and underweight emerging market bonds.”

Mr Gardiner said the move to boost exposure to developed market stocks came in spite of some slightly challenging data from the US earlier this month.

“The ISM manufacturing survey in the US is one of the best-established cyclical indicators there is,” he said.

“So when [earlier this month] it registered the sharpest decline since October 2008, we had to take notice – as did global stock markets, which were already nervous due to signs of more local difficulties and civil unrest in some emerging economies. At one stage [in early February], developed stocks were down 6 per cent from their January 22 post-crisis high and 5 per cent in 2014.”

However, Mr Gardiner said “on closer inspection” the data appeared to have been impacted by the severe weather seen in the US in recent weeks.

“The thaw may take a month or two to come through, but when it does, we think expectations of future growth will have been little affected,” he added.

Elsewhere, Mr Gardiner said the worries in emerging markets “may persist a little longer”.

“If it does lurch unexpectedly into crisis – if, say, continued portfolio outflows trigger re-trenchment by nervous governments and central banks – the impact could be material,” he said.

“The emerging world these days accounts for roughly two-fifths of the global economy in nominal terms, and perhaps one half in inflation-adjusted terms. However, we think in practice it may not be the case.

“The main deficit countries in the bloc are running a collective current account deficit of perhaps 0.5 per cent of global GDP, equivalent to a fraction of the bloc’s contribution to annual global growth.”