The financial landscape has undergone a radical transformation; there will be no return to a pre-credit crunch situation. Policymakers urgently need to get some traction in their policy initiatives, if disaster is to be avoided. Investors need to look beyond the immediate crisis, and consider how both short term and structural change will affect returns on asset classes.
Barclays Wealth, 07 October 2008
The October edition of the Barclays Wealth Signpost Quarterly Investment Strategy Report reports on recent dramatic events in markets, and identifies risks and opportunities over short-, medium- and long-term time horizons.
Michael Dicks, Head of Research and Investment Strategy, Barclays Wealth, said, “Recent ructions in markets have been on an unprecedented scale – leaving market participants doubting policymakers’ resolve and ability to deal with the crisis. Policymakers cannot make any more mistakes: the clock is ticking, and it is one minute to midnight.”
Barclays Wealth believes that, no matter what policy initiatives are undertaken, market conditions will remain tough for some time. The new financial world post-crisis will also be much more regulation-heavy and financial sector-light, with lower potential growth in the developed economies – and lower volatility. Central banks will shift their attention to credit creation and asset prices.
In the short term, equities will manage only a half-hearted bounce at best, but there are opportunities based around existing credit spreads. A dollar crisis, however, we deem as unlikely.
Looking further out, on a one-year horizon, Barclays Wealth remains confident that the US will make some sort of a recovery, and inflation will be contained. Although Barclays Wealth has trimmed its equities overweight, it continues to recommend such an overweight in both the US and the emerging markets. For the first time, Barclays Wealth is also recommending an overweight on investment grade credit.
Based on long term rates of return calculations, Barclays Wealth thinks that rates of returns on developed economy equities over the next market cycle will be somewhat lower than in the past – and that the return on their bond markets may be slightly higher. The implication of this is that any equities overweight should be smaller than simple asset allocation analysis suggests. But emerging market equities will remain attractive.
Download 'One minute to midnight' [PDF]
To arrange an interview or for further media information:
Barclays Wealth
Nicola Hankey, Head of PR
020 7114 9813 / 07775 548418
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020 7699 2483 / 07500 953 280
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