Barclays Wealth positive on UK stocks, credit

Barclays Wealth, the global wealth management institution, has advised its clients to stay positive on stocks and credit in a study released yesterday.

Khurram Jafree, Head of Investment Advisory Middle East and North Africa (Mena), Barclays Wealth, said: "Barclays Wealth strategists are advising clients to buy UK equities, which are the most international of the larger stock markets. This makes them partially hedged against the domestic risk.

"Our strategists are also wary of gilts since they look expensive, the business cycle is against them and the supply-demand imbalance looks particularly unbalanced as a result of the ending of the Bank of England's quantitative easing programme.

"However, Barclays Wealth is still generally positive on corporate assets globally, since valuations still look inexpensive in the case of equities and high-yield credit," said Jafree.

The Compass May Research also recommended two currencies the British pound and the Japanese yen.

It suggested that the sterling is weak due to the uncertainty that occurred over the implications of the general election along with the unpleasant mix of stagnant growth and higher-than-expected inflation.

Conversely, the research advises that the yen will be hurt by rising global interest rates and by higher commodity prices. To take advantage of this opportunity, it recommended clients to establish long positions in sterling against the Japanese yen.

"The negative view of our strategists on the yen is long-standing, especially that the Japanese economy is one of the weakest in the developed world. Deflation in Japan is still a concern and more quantitative easing measures are likely to be implemented in the near future. Additionally, higher commodity prices are expected to hurt the yen, especially that Japan is a net importer of most commodities," he added.

Commenting on the inflation hedge, Jafree said: "Inflation is a concern for investors, however inflation-linked bonds and gold may not prove to be useful in the short term. Our strategists previously recommended a diversified portfolio of commodities, distressed debt funds and UK commercial real estate funds as effective inflation hedges. Now they suggest two additional investment approaches – stocks of companies with pricing power and actively managed real estate credit."

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