#digi2013 William Hobbs, Barclays

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  • Investment outlook 2013

    William HobbsHead of Equity Strategy

    January 2013

  • *Outline of presentation2013 outlookRisk #1: the euro crisisRisk #2: US & UK austerityThe global contextHow to invest

  • * 2013 OutlookSource: Google Images, Barclays

  • *Clouds begin to liftMost visible clouds: 1: The euros existential crisis 2: Fiscal austerity in the US and UK Rays of sunshine? 1: The ECB (and, if needed, the BoE) 2: US New Year deal & UK history 3: The bigger picture: Customer no. 1 and Asia

  • *Key barometer: manufacturing surveys stabilising Source: Bloomberg, Datastream, Barclays Research

  • *

    Risk #1: the euro crisis

  • How to view it:

    One must imagine Sisyphus happy Camus

  • *The ECBs safety net at workSource: Bloomberg, Barclays

  • *Spain, the ECB and OMTWill Spain ask for a bail-out?If the ECBs promise is credible, it may not matterA formal request determines who, not what

    After Greeces default, why not Spain? Budget and debt arithmetic is betterEconomy is different & reforms more credibleThe troika would try harder

  • *Plausible timescale for a definitive euro fixSource: Blackrock, Barclays Wealth StrategySafeguard banks, tackle deficits & insolvent sovereignsCo-ordinate deposit insurance, supervision, rescue facilitiesGreater fiscal integration, joint bond issuanceMore competitive peripheral economiesLasting solution20122017??2022???2013-15?

  • *

    Risk #2: US & UK fiscal austerity

  • *US fiscal cliff has been turned New Year compromise was a big dealAmerican Taxpayer Relief Act keeps a lid on taxesTax hit in 2013: $190bn, or 1.2% GDP (cf: $650bn, 4.1%)

    TBD (March?): spending cuts & debt ceiling Spending sequestration: $90bn, or 0.6% GDP Credit ratings matter less than fundamentals

  • *Govt. borrowing (rolling 12 mths, % GDP)Source: Datastream, Barclays Research

  • *Structural government deficits (IMF, % GDP)Source: IMF WEO; Barclays

  • *

    How 364 economists got it totally wrongDaily Telegraph, March 2006 a 25th anniversary

    Precedent: a brief UK history lesson

  • *Sterling is competitive & real rates are lowSource: Datastream, Barclays Research

  • *

    The global context

  • *US housing market gathering momentum

    Source: Factset, Barclays Research

  • *US consumer spending: life after debtSource: Datastream, Barclays Research

  • *Total US liabilities are largeSource: Datastream, Federal Reserve, Barclays Research

  • * but consumer assets are larger

    Source: Factset, Barclays Wealth Strategy

  • **Asian growth: structural underpinnings Source: US Bureau of Census, MSCI, Barclays Asias weight in the world, %

  • *Barclays key macroeconomic projectionsReal GDP (%)Global 3.83.03.24.0Emerging6.55.05.46.0US1.82.32.12.5Euro area 1.5-0.40.11.4UK 0.9-0.11.32.2Inflation (CPI,%)Global3.92.93.03.3Emerging6.44.85.15.1US3.22.12.02.5Euro area2.72.51.81.7UK4.52.82.82.4Official interest rates (end-year, %)US 0.00.25 0.00.25 0.00.25 n/aECB1.00.750.5n/aBank of England0.50.50.5n/aBarclays Forecasts 20112012(E)2013(F)2014(F)

  • *

    How to invest

  • *Conclusion: risk assets preferred in 2013Corporate securities preferred to government- Business cycle and collective risk appetite matter more than QE - Credit spreads are flattered by low GB yields: High Yield preferredStocks preferred to bonds- Analysts too optimistic, but market doesnt believe them: valuations low- Current: US and EUX preferred to Japan, UK, RoW; neutral EM (Asia pref.) - Within EUX: some core and some periphery - Rotation ahead: Income & recovery to switch into Growth3. F/X: USD becomes pro-cyclical; JPY & CHF to reverse; Asian EMs favoured

  • *Strategic and Tactical Asset Allocation

    Moderate risk portfolioAsset ClassIndicesSAASAA +TAATAACash & Short Maturity BondsBarcap Global Treasury 1-3y8.0%6.0%-2.0%Developed Government BondsBarcap Global Treasury 7-10y9.0%4.0%-5.0%Investment Grade BondsBarcap Global Corporate4.0%4.0%High Yield & Emerging Markets Bonds Barcap Global High Yield and EM8.0%10.0%2.0%Developed Markets EquitiesMSCI World Index38.0%43.0%5.0%Emerging Markets EquitiesMSCI EM10.0%10.0%-CommoditiesDJ UBS Future Commodity Index5.0%5.0%-Real EstateMIT/CRE IBI US Index (70%) and IPD UK (30%)4.0%4.0%-Alternative Trading StrategiesBarclays Wealth ATS Weighted Index 14.0%14.0%-TOTAL100.0%100.0%0%

  • Developed profitability is not extreme (real ROE, %)Source: MSCI, Datastream, FactSet, BarclaysPlease note that past performance is not necessarily a reliable indicator of future performance

  • *Cross-asset dislocation: a message to CFOsSource: Factset, BarclaysPlease note that past performance is not necessarily a reliable indicator of future performance

  • DisclaimerThis document has been issued and approved by Barclays Bank PLC. Although information in this document has been obtained from sources believed to be reliable, we do not represent or warrant its accuracy, and such information may be incomplete or condensed. This document does not constitute a prospectus, offer, invitation or solicitation to buy or sell securities and is not intended to provide the sole basis for any evaluation of the securities or any other instrument, which may be discussed in it. All estimates and opinions included in this document constitute our judgement as of the date of the document and may be subject to change without notice. This document is not a personal recommendation and you should consider whether you can rely upon any opinion or statement contained in this document without seeking further advice tailored for your own circumstances. This document is confidential and is being submitted to selected recipients only. It may not be reproduced or disclosed (in whole or in part) to any other person without our prior written permission. Law or regulation in certain countries may restrict the manner of distribution of this document and persons who come into possession of this document are required to inform themselves of and observe such restrictions. We or our affiliates may have acted upon or have made use of material in this document prior to its publication. You should seek advice concerning any impact this investment may have on your personal tax position from your own tax adviser.Barclays offers wealth and investment management products and services to its clients through Barclays Bank PLC and its subsidiary companies.Barclays Bank PLC is registered in England and authorised and regulated by the Financial Services Authority. Registered number is 1026167 and its registered office is 1 Churchill Place, London E14 5HP. Barclays Bank PLC 2012. All rights reserved. Issued for companies including Barclays Bank PLC (Reg. No. 1026167), Barclays Stockbrokers Limited (Reg. No. 1986161), a member of the London Stock Exchange and PLUS, Barclays Sharedealing (Reg. No. 2092410), Barclays Bank Trust Company Limited (Reg. No. 920880) and Gerrard Investment Management Limited (Reg No. 2752982), a member of the London Stock Exchange. All of these companies are registered in England and have their registered office at: 1 Churchill Place, London E14 5HP. All of these firms are authorised and regulated by the Financial Services Authority.

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