01 October 2021
Welcome to the October 2021 edition of “Market Perspectives”, the monthly investment strategy update from Barclays Private Bank, which is also available to download as a PDF at the bottom of this page.
Investors end summer in ebullient mood, though difficulties at Chinese real estate developer Evergrande cloud the outlook. Our investment experts highlight our main investment themes, looking at how investors can play their part in tackling climate change, if proposed tax hikes might hit equity valuations, bonds fit for this stage in the credit cycle and whether surging energy prices threaten the economic recovery.
Jean-Damien Marie and Andre Portelli
Co-Heads of Investment, Private Bank
Insights for October
US corporate tax rises seem on the cards to pay for proposed infrastructure spending. Are US equities about to suffer as a result? US stocks are already close to all-time highs. With US earnings growth likely to slow, we believe valuations will struggle to expand over the rest of the year.
Much attention is being paid to the outlook for the rate market and when central bank bond purchases are trimmed. But the outlook for corporate bonds seems as important. High yield spreads may tighten at this stage of the cycle. As such, a disciplined investment approach, avoiding the highest beta bonds offering the highest spread, may be called for.
Calls for a supercycle emerging in the first quarter of the year and commodities staging a comeback in the third quarter keep many investors evaluating the effects of mounting price pressures. Can investors help to hedge portfolio return by investing in commodities?
Correlations between asset classes have increased in the last decade, making diversification more difficult. Macroeconomic variables seem to be the culprits. In such times, tweaking tactical asset allocations by leaning more towards cyclical, real or risky asset classes might be considered. With inflationary pressures building, precious metals might offer one solution.
As the COP26 gathering nears to find ways to tackle climate change, investors play a key role to play. Transitioning to a low-carbon world offers potentially lucrative investment opportunities. Investing in funds able to find such opportunities is one approach, while also improving portfolio diversification. Alternatively, direct investments may appeal to those keen to participate in creating leading green solutions.
Many equity markets are close to record highs. Sustained bull markets and periods of positive returns can make investors uneasy and expect a correction. But duration of time isn’t the driver of the market cycle. History shows that this shouldn’t be a primary concern for investors and that time in the market is what counts.
The global economic recovery remains on track, even if at a slower pace, though supply-chain bottlenecks, inflationary pressures and the COVID-19 are concerns. Developed market government bonds stand out in the debt market. Central bank policy continues to support “quality” developed market equities and gold, though elevated volatility may persist. However, we are cautious on prospects for high yield bonds.
Our investment experts highlight five areas that may be key to the direction financial markets take in coming months. This month we look at surging power prices, accelerating retirements from the US workforce, how much inflation matters, how cheap emerging markets look and if US equity volatility is set to rise.
While volatility is likely to be elevated, India appears one of the more attractive emerging markets at this juncture. Growing confidence in the strength of the Indian economic recovery supports pockets of value in quality equities, bonds and private markets for long-term investors, though diversification remains key.
All the articles published in Market Perspectives are also available to download here as a PDF:
