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Market Perspectives

04 October 2019

Welcome to the October edition of “Market Perspectives”, the monthly investment strategy update from Barclays Private Bank, which is also available to download as a PDF [PDF, 325KB].

Persistent trade tensions and rising geopolitical risks are taking their toll on the global economy. Indeed, Germany appears close to recession. But this is due to its high exposure to manufacturing, which has been the main victim of the ongoing trade dispute. Services and households continue to be resilient and should prevent a global recession. At a time of such elevated uncertainty, we prefer companies exposed to areas immune to trade tensions.

Sentiment towards equities improved in September on hopes of a US-China trade accord. However, limited upside to earnings and rich market valuations mean that equities are unlikely to break significantly above their trading range. That said, several opportunities exist for active managers to add alpha.

In particular, we keep our preference for quality stocks. While value stocks rebounded strongly against their quality peers in September after years of underperformance, quality stocks remain a more compelling investment style and are likely to regain the ascendency soon.

Despite concerns over high leverage levels and an economic slowdown, the outlook for investment grade debt is positive. However, security selection will be key for speculative grade debt this late in the cycle, as the risk of a surge in default risk rises.

Private debt assets under management have more than trebled in the ten years to 2018, buoyed by low interest rates and an expanding pool of negative-yielding fixed income securities. Prospects for the asset class remain positive, not least thanks to different strategies which benefit at different times of the economic cycle.

Jean-Damien Marie and Andre Portelli
Co-heads of Private Bank Investments

The manufacturing conundrum

Persistent trade tensions and rising geopolitical risks are taking their toll on the global economy. Indeed, Germany appears close to recession, though resilient services and households should prevent a global recession. At a time of such elevated uncertainty, where do the best investment opportunities lie?

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Equities: looking for upside

Sentiment towards equities improved in September on hopes of a US-China trade accord. However, limited upside to earnings and rich market valuations mean that equities are unlikely to break significantly above their trading range. So where do the best opportunities exist for active managers to outperform?

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Is value back in fashion?

Value stocks were back in vogue in September, rebounding strongly against their quality peers after years of underperformance. That said, quality stocks remain a more compelling investment style. Not least due to a bias to trendy sectors and away from “has-been” industries. So just how soon will quality stocks regain the ascendency?

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High yield issuers most exposed to a slowdown

Despite concerns over high leverage levels and an economic slowdown, the outlook for investment grade debt is positive. However, security selection will be key for speculative grade debt late in the cycle as the risk of a slowdown and a surge in default risk rises.

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Private debt: all-weather investment solution

Private debt assets under management have more than trebled in the ten years to 2018, buoyed by low interest rates. Prospects for the asset class remain positive. As the pool of negative-yielding fixed income securities expands, how can private debt help investors to enhance yield at different times of the economic cycle?

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Multi-asset portfolio allocation

The economic cycle still appears far from over, with all eyes on US-China trade tensions and central bank monetary policy. We favour emerging markets bonds as a way to boost returns this late in the cycle. Similarly, earnings growth and dovish policy should underpin developed market equities, especially structural growth opportunities. We are cautious on high yield bond prospects with valuations looking expensive.

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Other editions of Market Perspectives

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