By Daniel Bases
NEW YORK, Feb 3 (Reuters) - Investors who abandoned stocks for bonds or cash in March 2009 only to miss out on a 64 percent rally still have a window of opportunity to jump back into shares, Barclays Wealth said in a report.
The wealth management division of Britain's Barclays Capital, said 'it's not too late' to buy equities now, saying it is their favored asset class versus long-dated government bonds and cash, their least-favored asset class.
In addition, the firm believes emerging market stocks and bonds are more or less fully valued, relative to developed markets, making the later more appealing.
Barclays advocates equities this year, along with other major fund managers. But their recommendations would mean a sharp about-face by mutual fund investors if one recent survey of fund flows is taken into account.
Investors poured a record net $396 billion into bond funds last year versus a net $81.7 billion into equity funds, New York-based mutual fund research firm Strategic Insight says.
The factors contributing to Barclays' outlook on equities are three-fold.
First, it points out 'the vigorous V-shaped recovery in corporate profits, with cost-cutting slowing being augmented by resumed modest top-line growth.'
Second, short-term interest rates are unlikely to rise soon, giving equities an edge over fixed-income investments while investor liquidity remains high.
Indeed, Strategic Insight says there is approximately $10 trillion worth of cash still on the sidelines, either in bank accounts or in money-market mutual funds.
A third factor Barclays says, is that equity valuations look 'undemanding' even after the rally. That is due partly to profits rising but also because stocks fell so sharply.
In the medium-term, the outlook is clouded by tightening of monetary policy and eventually fiscal conditions.
For fixed income portfolios, Barclays still favors short-duration bonds, preferring corporates over government.
'The returns on credit in 2010 will likely be close to their current yields - we doubt that there is much scope for further price gains, let alone the sort of returns seen in 2009,' the firm said.
ALTERNATIVES
Barclays said convertible bonds - fixed income securities that offer coupon payments with options to convert to equity - are attractive and offer an alternative for low composure (read cautious) investors.
'Going forward, the improving macro-economic backdrop, continued accommodative policy from central banks and increasing risk appetite should support the demand for products that offer equity exposure,' Barclays said,
'And as we move further into 'mid-cycle' phase, and the risks of central banks beginning to tighten monetary policy approach, yield might become more attractive. Convertibles score on both points.'
The firm believes oil prices currently at around $77 a barrel, are close to the year-end forecast of $83. Believing the trading range will remain tight around its target, it suggests investors 'look at structures that can reward investors by selling this implied volatility.'
While it advocates developed market stocks and bonds over emerging markets, the firm still believes the later will outpace the former in terms of economic growth.
Therefore Barclays continues to recommend investors hold emerging market currencies that include the South African rand, Brazilian real, Korean won, Indian rupee, Indonesian rupiah and Polish zloty against a basket of dollars, euros and yen.
It believes holding commodity currencies such as the Australian and Canadian dollars or Norwegian krone versus the low-yielding Japanese yen still makes sense, with 'scope for significant performance from this trade over the next 12-18 months, as our forecast for the yen continues to be bearish.'
Using actively managed funds, Barclays believes investors will gain from a revival of mergers and acquisitions activity.
'There is likely to be plenty of 'unfinished business' as far as many industrial consolidation trends are concerned.'
(Reporting by Daniel Bases; Editing by Andrew Hay) Keywords: INVESTMENT BARCLAYS/STOCKS (daniel.bases@thomsonreuters.com; +1 646 223 6131; Reuters Messaging: daniel.bases.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, Feb 3 (Reuters) - Investors who abandoned stocks for bonds or cash in March 2009 only to miss out on a 64 percent rally still have a window of opportunity to jump back into shares, Barclays Wealth said in a report.
The wealth management division of Britain's Barclays Capital, said 'it's not too late' to buy equities now, saying it is their favored asset class versus long-dated government bonds and cash, their least-favored asset class.
In addition, the firm believes emerging market stocks and bonds are more or less fully valued, relative to developed markets, making the later more appealing.
Barclays advocates equities this year, along with other major fund managers. But their recommendations would mean a sharp about-face by mutual fund investors if one recent survey of fund flows is taken into account.
Investors poured a record net $396 billion into bond funds last year versus a net $81.7 billion into equity funds, New York-based mutual fund research firm Strategic Insight says.
The factors contributing to Barclays' outlook on equities are three-fold.
First, it points out 'the vigorous V-shaped recovery in corporate profits, with cost-cutting slowing being augmented by resumed modest top-line growth.'
Second, short-term interest rates are unlikely to rise soon, giving equities an edge over fixed-income investments while investor liquidity remains high.
Indeed, Strategic Insight says there is approximately $10 trillion worth of cash still on the sidelines, either in bank accounts or in money-market mutual funds.
A third factor Barclays says, is that equity valuations look 'undemanding' even after the rally. That is due partly to profits rising but also because stocks fell so sharply.
In the medium-term, the outlook is clouded by tightening of monetary policy and eventually fiscal conditions.
For fixed income portfolios, Barclays still favors short-duration bonds, preferring corporates over government.
'The returns on credit in 2010 will likely be close to their current yields - we doubt that there is much scope for further price gains, let alone the sort of returns seen in 2009,' the firm said.
ALTERNATIVES
Barclays said convertible bonds - fixed income securities that offer coupon payments with options to convert to equity - are attractive and offer an alternative for low composure (read cautious) investors.
'Going forward, the improving macro-economic backdrop, continued accommodative policy from central banks and increasing risk appetite should support the demand for products that offer equity exposure,' Barclays said,
'And as we move further into 'mid-cycle' phase, and the risks of central banks beginning to tighten monetary policy approach, yield might become more attractive. Convertibles score on both points.'
The firm believes oil prices currently at around $77 a barrel, are close to the year-end forecast of $83. Believing the trading range will remain tight around its target, it suggests investors 'look at structures that can reward investors by selling this implied volatility.'
While it advocates developed market stocks and bonds over emerging markets, the firm still believes the later will outpace the former in terms of economic growth.
Therefore Barclays continues to recommend investors hold emerging market currencies that include the South African rand, Brazilian real, Korean won, Indian rupee, Indonesian rupiah and Polish zloty against a basket of dollars, euros and yen.
It believes holding commodity currencies such as the Australian and Canadian dollars or Norwegian krone versus the low-yielding Japanese yen still makes sense, with 'scope for significant performance from this trade over the next 12-18 months, as our forecast for the yen continues to be bearish.'
Using actively managed funds, Barclays believes investors will gain from a revival of mergers and acquisitions activity.
'There is likely to be plenty of 'unfinished business' as far as many industrial consolidation trends are concerned.'
(Reporting by Daniel Bases; Editing by Andrew Hay) Keywords: INVESTMENT BARCLAYS/STOCKS (daniel.bases@thomsonreuters.com; +1 646 223 6131; Reuters Messaging: daniel.bases.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.