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Barclays Recommends Investors Take Advantage of Supportive Monetary Policy

Global Outlook report sees mildly better growth, low inflation and easy monetary policy as creating a favorable backdrop for risk assets 

The combination of muted inflation and mildly better growth should allow easy monetary policy by major central banks to continue in 2015, according to Barclays’ latest flagship quarterly research publication Global Outlook: A more favorable backdrop for risk assets.

“The biggest change in the last quarter is how much more supportive we expect major central banks to be,” said Ajay Rajadhyaksha, Co-Head of Fixed Income, Currencies and Commodities Research. “Deflationary pressures should allow for easy monetary policy to continue in Europe and Japan, and market pricing suggests investors are far less concerned about Fed policy withdrawal than they were at the start of 2014.”

Amidst this supportive backdrop, global growth will likely rise mildly, to 3.5% in 2015 from 3.1% in 2014, suggesting that investors should maintain a balanced portfolio between stocks and bonds, with only a modest overweight in equities. Investors should continue to overweight Japanese equities, although any such positions should be currency hedged for non-local investors.

Regional disparities in economic conditions and monetary policies between the Federal Reserve and other major central banks suggest investors should overweight the US dollar, especially against the euro and the yen. US dollar strength should persist even if lower oil prices end up delaying the timing and speed of the Federal Reserve’s tightening cycle.

Investors who expect a large and sustained sell-off in developed bond markets in 2015 are likely to be disappointed again, despite our expectations of a first Federal Reserve rate hike in June.

Other recommendations in the Global Outlook include:

  • Move down the credit curve in corporate and securitized products
  • Selectively choose higher yielding country debt in emerging markets, where the oil price decline will create winners and losers
  • Go long India local-currency debt, but avoid Russia

Barclays’ Global Outlook research report, published quarterly, provides an assessment of all major economies and outlines the likely implications for global financial markets.