In its latest Investment Compass, Barclays Wealth CIO Aaron S Gurwitz, said: "Markets are up over the past three months because, on balance, we’ve gotten more good news than bad. Investors may now be able to turn their attention away from day-to-day fluctuations and devote some time, study and money to neglected securities, sectors and investment strategies.
The report goes on to say that the rally in stock markets is neither surprising nor without foundation because economic data has been far less fragile than feared, the ECB has partially back-stopped the euro-area banks and valuations are still subdued.
Kevin Gardiner, MD and head of investment strategy for EMEA at Barclays Wealth, admitted there are plenty of profits on the table to be taken, with developed stocks now up roughly 20% from their October lows, but he said focusing on the ongoing risks could mean missing many of the investment opportunities out there.
"A definitive solution is of course still years away: it requires much greater fiscal integration and a structurally more competitive southern euro area. But provided progress is being made in that direction and the ECB continues to partially underwrite the banking system, we expect investor attention to shift elsewhere."
Improved business surveys and stabilising housing and unemployment data in the US are also positive bellwethers, although Gardiner does not predict a near-term impact on inflation.
"The reduction in euro area banking nerves, and the modest improvement in the immediate economic outlook (without any deterioration in the interest rate outlook) we think leaves risk assets facing a more benign investment climate. The rally to date has closed some of this, but in our view it remains historically wide."
He warned though that high-yield credit, another favoured risk asset of Barclays Wealth, doesn’t look as inexpensive as equities and that in a very severe interest rate reversal (something he deems unlikely) mark to market losses are possible for high yield bonds, as in 1994.
