Barclays Wealth

Barclays Wealth Compass for July 2010 recommends government bonds and European and Korean Equities

Barclays Wealth 'Compass' investment calls for July include:

• Tactical Asset Allocation - favour government bonds alongside stocks
• Buy Euro-sensitive European Equities
• Buy Korean Equities

Recommendations

Tactical Asset allocation 

Investors' expectations are polarised, and likely to stay so through the summer at least. We are reshaping our recommended Tactical Asset Allocation to reflect this continuing polarity. We want to retain some exposure to pro-cyclical risk assets such as equities. But at the same time, we want some exposure to assets that will perform in a deflationary climate, and are now raising government bonds to an overweight. To fund the resultant "barbell" strategy we have extended our underweight in cash, and reduced also our weightings in other "in between" assets such as corporate bonds.  

On the subject  Kevin Gardiner, Head of Global Investment Strategy, said:

"We want some added exposure to assets that will perform in a deflationary climate. Alongside a continuing, though reduced, overweight in equities, we now raise government bonds to an overweight, even though they have already performed well. To fund the resultant "barbell" strategy, we have extended our underweight in cash, and reduced our weightings in other "in between" assets such as corporate bonds - though we retain a small overweight in high-yield credit."

Gardiner continued "Though unconventional, such portfolio strategies can perform at a time when the collective investor mood is lurching between extremes by owning both pro-cyclical and deflationary beta."

Buy Euro-Sensitive European Equities

European equities are now one of our preferred markets, partly because we expect the euro to remain weak for some time - one of the adjustment mechanisms for the European economy. We believe that investors should position portfolios to benefit from the weakness of the currency; a strategy that favours increasing exposure to export-oriented companies.

Dean Turner, Equity Investment analyst, commented: "Those companies that enjoy a high level of overseas earnings are likely to benefit the most from the weakness of the euro. Historically, the best performing sectors during periods of currency weakness have been information technology, oils, materials, consumer goods and industrials. The worst performing sectors have been consumer services, utilities and financials. Our current sector recommendations are for overweight positions in information technology and industrials within Europe and on the basis of this analysis we would re-emphasise that call."

Buy Korean Equities

It isn't common to find an economically-sound market where both the equity market and the currency are inexpensively valued. In Korea, we may have both.  A combination of a global bout of risk aversion and worries stemming from a North Korean naval attack have pushed down Korean equities to a valuation level one standard deviation below its long-term mean. The Korean Won continues to be inexpensive on valuation grounds - and now even more so after falling over 10% from early May on geopolitical concerns.

Manpreet Gill, Asia Strategist commented "We don't ignore the risks - we're cognisant of the fact that this investment idea is very firmly in the pro-cyclical camp and is dependent on a continued global recovery. We do believe, however, that this is the right idea to add to the risky end of a barbell strategy."

For further information contact:

UK

Lucy Davidson
+44 (0) 20 7114 8947

Will Bowen
+44 (0) 20 7114 8434

US

Monique Wise
+1 212 526 3568

Tiffany Alcorn
+1 212 526 7992

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