Barclays Wealth Continues to Recommend Equities, Particularly Developed Markets

NEW YORK, May 4, 2011 /PRNewswire/ --

Global Recovery and Valuations Continue to Favor Stocks

The global economy continues to move firmly in the right direction, despite some patchier US data and the risks posed by high oil prices, and that will keep corporate profits growing, leaving the valuation of developed equities particularly inexpensive.

• Barclays Wealth believes the global economic recovery can withstand the recent run up in oil prices as improvements in the labor market should outweigh the effects of higher oil prices on consumer sentiment. (Barclays Wealth does not expect oil to rise to $140-$150 a barrel.)
• Commodity costs are not a high enough portion of companies' costs to derail the increase in corporate profits.
• Interest rates are slowly starting to normalize, but this process is expected to be gradual, reflecting the pace of recovery, and posing little challenge to corporate profitability.
• While the fluctuating debate about US creditworthiness will be a source of ongoing volatility, it is unlikely to develop into a full-blow crisis
• Europe remains solid, with Germany expected to grow at an above-trend 3.3% this year, although peripheral countries will continue to struggle.

"While some setbacks for developed equity markets in the weeks ahead would not be surprising, we recommend, particularly to those who are under-invested, that they use such volatility as an opportunity to add equities," says Kevin Gardiner, Head of Global Investment Strategy. Barclays Wealth currently recommends for a moderate risk portfolio a 43% allocation to Developed Markets Equities and an 8% allocation to Emerging Markets Equities.

Barclays Wealth continues to believe bonds face the biggest cyclical and valuation headwinds.  

"It is the prospect of rising rates, and not the concern over sovereign creditworthiness, which makes us tactically wary of bonds," said Gardiner. Barclays Wealth recommends owning fewer Investment Grade Bonds than usual—allocated at just 1.0% for a moderate risk portfolio.

"The divergence between two non-euro economies—Sweden and Switzerland—gives rise to a stand-alone Investment Idea: namely, buying the krona and selling the franc," said Gardiner. "The Swedish economy continues to grow and interest rates are rising, while the overvalued Swiss franc is likely to dampen that country's economic growth and keep interest low."

Chinese Equities Remain Attractive

The primary concern facing the Chinese economy currently is overheating – as reflected in the tight employment situation, high urban real estate prices, and rising inflation.  Barclays Wealth anticipates a soft landing.

• The 12th plan (2011-2015) targets sustainable economic growth, with an emphasis on domestic demand and seven strategic industries (below).
• The central bank has proactively tried to curtail inflation with several tightening measures in the past seven months.
• Chinese equities valuations are attractive.  The MSCI China's current price-to-earnings multiple of 11.6 times remains below its 5-year average of 13.5 times and below the MSCI Asia ex-Japan price-to-earnings multiple of 13.0 times.

Benjamin Yeo, Head of Research, Economics and Strategy, Asia, says: "In anticipation of lower inflation rates and a successful Five-Year Plan, we recommend both short-term and long-term investors accumulate Chinese stocks, especially on any market weakness. However effective stock selection is key."

Strategic Industries Targeted in 12th Five-Year Plan:

1. Energy saving & environmental protection (Clean coal/natural gas, energy efficient products)
2. Alternative energy (Bio-energy, solar, wind and nuclear power and related equipment)
3. Alternative fuel cars (Hybrid/electric/fuel cell car and related technologies)
4. Advance materials (Rare earth, high performance materials/engineering plastics)
5. New generation IT (Advanced software, microchips; cloud computing)
6. Bio-technology (Pharmaceutical drugs; medical equipment)
7. High-end equipment manufacturing (Aerospace equipment/aircraft; passenger trains)

To read the full Barclays Wealth Compass report, please click on the following link: http://www.barclayswealth.com/Images/Compass_US_May_2011.pdf

About Barclays Wealth

Barclays Wealth is a leading global wealth manager, and the UK's largest, with total client assets of $271billion (166bn pounds Sterling), as of March 31, 2011. With offices in over 20 countries, Barclays Wealth focuses on private and intermediary clients worldwide, providing international and private banking, investment management, fiduciary services and brokerage.

Barclays is a major global financial services provider engaged in retail banking, credit cards, corporate and investment banking and wealth management with an extensive international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs 147,500 people. Barclays moves, lends, invests and manages money for customers and clients worldwide

For further information about Barclays Wealth, please visit our website www.barclayswealthamericas.com.

Twitter page: www.twitter.com/barclayswealth

Barclays Wealth, the wealth management division of Barclays Bank PLC, functions in the U.S. through Barclays Capital Inc., an affiliate of Barclays Bank PLC. Barclays Capital Inc. is a registered broker dealer and investment adviser, regulated by the U.S. Securities and Exchange Commission. Member FINRA/SIPC.

Barclays Bank PLC, registered in England and Wales (no. 1026167), has a registered office at 1 Churchill Place, London, E14 5HP, United Kingdom, and is regulated by the Financial Services Authority.

SOURCE Barclays Wealth