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ANALYSIS

Stay the course on risk assets: Barclays

LONDON, March 23, 2017

World economy is expected to grow 3.7 per cent in 2017, which, while unimpressive by historical standards, suggests meaningfully firmer growth than in 2016, says Barclays, the UK-based multinational banking and financial services company.

There has been a synchronized upswing in global growth in recent months, with most of the uptick coming from outside the US, said Barclays in its latest Global Outlook Overview.
 
Deflation fears have faded in Japan and Europe, and inflation pressures (even in the US) are low enough that central banks can normalize policy very slowly and remain supportive of financial markets. A broad-based global expansion and reduced risk of deflation in Japan and the euro area imply that the divergence in monetary policy seen since 2014 may largely have run its course as a driver of asset markets, the report said.

While politics (in Europe) and policy (in the US) could pose challenges, the immediate risks we can identify seem modest relative to the political shocks that investors handled so well in 2016. The economic and financial backdrop appears benign for the three-to-six-month horizon of the Global Outlook.

The key tension lies in elevated valuations, which could drag down medium-term returns across most financial assets. But valuations are not yet at levels that justify a near-term retreat from risk, in our view. Safe assets are expensive, as well, and a material worsening in either the global economy or supportive financial conditions is unlikely for the next few quarters. “We recommend staying long risk assets,” the Global Outlook report said.

“In this vein, we maintain our modest overweight on equities over bonds. However, we shift the overweight recommendation from US stocks to Europe and emerging markets.

“In general, our macro view is supportive of EM assets, including not just equities but also dollar debt and some local currency sectors. In corporate credit, we turn neutral on US and European high yield because of valuations and policy-related risks, but still recommend US and European IG,” Barclays said.

“We believe that the USD rally, now in its fifth year, is close to its end. The dollar should trade sideways for the next few quarters, another supportive element of the risk environment. Bond markets should be similarly supportive; we expect a slow drift higher in global bond yields, with the US yield curve likely to bear-flatten and some convergence between longer rates in the US and Europe,” it added. – TradeArabia News Service




Tags: Barclays | equities | Global Outlook |

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