The firm said for it to return to a more bullish stance on risky assets, there needed to be a clear indication the European crisis was nearing short-term containment and benefit could be found due to medium-term corrective action.
“This does not mean we are advocating no risk,” said director of in UK investor solutions at Barclays Capital, Nathan Bance, adding: “The markets could have an upside but we suggest investors think about tail-risk hedges in their portfolio to hedge potential macro downside.”
Barclays Capital does not anticipate a standalone growth rebound in the US and Japan over the reminder of this year, Bance said, also pointing to research indicating dynamics are slowing in other parts of the world growth, most notably the euro area and in emerging market Asia.
However, Bance suggested that trading volumes were higher.
“Often the trouble in climates like this are that investors can over-trade just when spreads widen, whereas, it may be sensible to consider supplementing existing investment positions with tail risk hedges” he said.
If investors did not want to stay with their existing tail-risk hedges, or if they felt the need to exit those positions because sentiment started to recover, Bance highlights that the research view is that investors should have a fresh look at suitable tail-risk hedges, such as calls on equity volatility and fixed income futures.
