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Market Perspectives

31 January 2020

Welcome to the February edition of “Market Perspectives”, the monthly investment strategy update from Barclays Private Bank, which is also available to download as a PDF [PDF, 586KB].

The start to the year has shown the impact of exogenous shocks as a risk to financial markets as opposed to a true weakening in fundamentals, something we highlighted in our Outlook 2020.

Tensions between the US and Iran rose significantly and unsettled investors in early January. In the alternatives article, we consider oil’s vulnerability to supply-side shocks and how gold can be used successfully as a diversifier in a multi-asset portfolio.

The debate on globalisation continues to be centre stage, with a signed “phase one” US-China trade deal. Arguably the main event of 2020 shaping the future of globalisation will be the race to the White House, which gets under way in February for Democrats, with the influential Iowa caucus and New Hampshire primary.

The record-setting rally on Wall Street continued in January, with all three indices at fresh highs as investors tuned out geopolitical “noise” and focused on improving global growth, accommodative central banks and consensus-beating fourth-quarter US earnings.

However, the impact of the coronavirus news on markets shows that investors are not far away from doses of reality, with elevated equity valuations and modest growth expectations tempering the potential for upside surprises.

After a strong 2019 for bonds, investors are looking for pockets of value. We look for opportunities for generating returns against a backdrop of negative yielding debt and the potential for sharp climbs in bond yields.

Finally, January’s news cycle was filled with both the World Economic Forum in Davos and wildfires in Australia. The link between them is climate change. Following our climate change insights in the Outlook 2020, we explore the physical risks that investors will need to consider to protect their portfolios from such extreme weather events.

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

Globalisation to the fore

Geopolitical tension in the Middle East, the signing of “phase one” of the US-China trade agreement and divergent views on climate change reflect the reshaping of globalisation and cooperation under way. With more geopolitical surprises on the cards, will portfolio diversification and yield enhancement counter the effects of potential negative turns in market sentiment?

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February’s crystal ball for Democrat candidacy race?

Arguably the biggest political event this year is the US election. The race to the White House starts in February with the Democrats. Financial markets will closely watch every twist, judging what a Republican or Democrat presidency means for American economic prospects and the balance of power globally. As the race heats up, how should investors position their portfolios?

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Equities: too far, too fast?

Despite fresh geopolitical tensions, equity markets continued their relentless march higher in January. Has the market run ahead of itself, though? While there is a risk of further overshoot driven by fear of little alternative option, enthusiasm for equities has its limits.

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A closer look at risks in the bond market

In hindsight 2019 was a “blue sky” scenario for bonds: the economy was not too hot and not too cold. Bond assets across various segments delivered double-digit returns. After last year’s rally, is there any value left in bond investments?

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Navigating the volatile world of geopolitics deterioration

The world has lived with Middle Eastern hostilities for many years and is likely to continuing doing so. This inevitably leads to short-term gyrations in financial markets, particularly in the prices of gold and oil. Investors should have a strategy in place to understand the drivers of both commodities and protect their portfolios from the resulting instability.

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Could your investments go up in smoke?

The extensive wildfires in Australia, with countless animal deaths, forest devastation  and economic disruption, illustrates how climate change is exacerbating the extent and severity of natural catastrophes. What can investors do when making investments to understand climate change risks?

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Multi-asset portfolio allocation

The economic cycle seems far from over, with all eyes on US-China trade tensions and central bank monetary policy. In fixed income, 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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