Welcome to the July edition of “Market Perspectives”, the monthly investment strategy update from Barclays Private Bank, which is also available to download as a PDF [PDF, 556KB].
As we turn to the second half of 2019, all economic data points to an extended late cycle with any recession a distant threat. Although volatility is likely to remain relatively high this year, we take a look at the benefits of being invested, compared to trying to time the market.
Back in April, we thought that there were signs of inflation coming in higher than was being priced by the market. While inflation might still surprise to the upside, especially if trade tensions escalate, risks have faded. So we have removed our inflation investment theme.
There was a surge in bonds offering negative yields last month, after the US Federal Reserve signalled that more rate cuts were on the cards. With investors looking for ways to enhance returns, emerging markets bonds may be part of the answer. That said, selection will be key.
With interest rates low and geopolitical tensions to the fore, private equity may have a role to play in globally-diversified, multi-asset portfolios. The asset class has little correlation with bonds and commodities, offering diversification benefits.
The bounce seen in global equities in June was a welcome relief after May’s sell-off. Focusing on equities with a quality bias still looks like the best approach, despite the high valuations. And with equities unlikely to climb much more over the rest of 2019, active strategies are preferable to passive ones.
Head of Investments Private Bank and Interim Head of Private Bank EMEA
Revisiting our investment themes
As we turn to the second half of the year we have reviewed our investment themes. With any recession in the global economy looking a distant threat and more dovish central bank policy, will inflation be less of an issue than expected?
Time in, not timing, the market counts
Escalating trade tensions and fears of an impending recession have encouraged some to position portfolios more defensively this year. However, staying invested in balanced, globally diversified portfolios is usually a more effective way to preserve wealth.
After the rally, focus on real yields
After the recent bond rally, yields in developed markets are trading at depressed levels. For investors keen to boost portfolio yields, emerging markets bonds may be part of the answer. The asset class offers attractive risk-adjusted returns. With volatility likely to increase due to global growth concerns, is the asset class still worth considering?
Time to be selective in equities
Improving trade tensions and rising expectations of US rate cuts this year bolstered risk assets in June after the market sell-off seen in May. With equities unlikely to end the year much higher, selective stock picking will be key. So where do the best pickings in the market lie?
Rates likely to be range-bound after the rally
After the recent bond rally, yields in the developed markets are trading at depressed levels. Investors continue to look for alternatives to enhance yields. Are emerging markets part of the answer?
Investing in private equity assets can help diversify portfolios and provide attractive risk-adjusted returns in a low-yield world. However, with a variety of private equity investments available, picking the one that meets your needs is key.
Multi-asset portfolio allocation
The economic cycle looks far from over as markets focus on central bank policy and trade tensions. We favour emerging markets bonds as a way to enhance returns this late in the cycle. Similarly, earnings growth and dovish monetary policy should underpin developed equities, especially structural growth opportunities. We are cautious on high yield bond prospects with valuations looking expensive.
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