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Market Perspectives
April 2019
05 April 2019
Welcome to the first edition of “Market Perspectives”, the monthly investment strategy update from Barclays Private Bank, which is also available to download as a PDF [PDF, 682KB].
Our aim is to identify key investment themes and discuss our current views across asset classes.
This issue looks at investment opportunities late in the economic cycle, the growing interest in sustainable investing and the implications of a possible increase in inflation. We also discuss why we think it’s too early to reduce equity exposure, despite higher volatility levels.
Head of Investments Private Bank and Interim Head of Private Bank EMEA
No lack of opportunities despite low returns
Despite a challenging time for markets over the last year, the next recession looks at least a year away and investment opportunities can still be found. The economy remains on shaky ground and expectations of when the next recession will occur will be key to market sentiment and investment decisions this year.
Investing in a late cycle
Global output is set to expand for a record 10 consecutive years in June. However, economic data such as leading indicators, the yield curve or real rates suggest we are late in the cycle but not yet close to a recession. So where can investors find potential investments this late in the cycle?
Enhancing total returns with yields
We expect asset class returns to be relatively muted in coming months considering current valuations and the macroeconomic outlook. So yields and carry have a role to play in attempts to boost total returns.
Why inflation could be a surprise
Major central banks have recently signalled a slower pace of rate rises than had been expected. While our economists do not expect a large increase in inflation this year, there is a risk that higher inflation takes markets off guard.
Equities outlook: feel the bounce
With earnings growth likely to remain positive, we expect the bounce in equity markets seen this year to be sustained. Low-to-mid single digit returns look possible. However, higher levels of volatility are likely this late in the economic cycle.
Fixed income outlook
As the pressure of a significant rate sell off has eased, fixed income opportunities have been created for bond investors to achieve stable returns in 2019. For investors considering longer duration strategies as too risky in attempts to achieve stable returns, we highlight that longer dated bonds provide portfolio insurance should the market reprice due to recessionary concerns or other event-driven shocks.
Tactical opportunities
We expect the economy to keep growing at a slow, steady pace. However, several indicators point to the cycle being in a late stage. A string of worst-than-expected economic data could easily spook markets and lead to short periods when different asset classes start pricing a higher likelihood of a recession.
Paying attention to sustainability in the current markets
At any point in the economic cycle, investors seek to select the best-performing companies. During its later stages, this challenge is accentuated with the dual aims to capture the final upside momentum and to be well-positioned for any downturn. Achieving both requires deep insight into systemic and company-specific risks and opportunities.
Tactical asset allocation
With the length of the economic expansion set to hit a record this year, a recession still looks over twelve months away. We believe short duration bonds are poised to cope with a flattening yield curve. Similarly, persisting earnings growth and a slower pace of rate rises are likely to underpin developed equities, especially those offering structural growth opportunities.
All the articles published in Market Perspectives are also available to download here as a PDF:
Other editions of Market Perspectives