Welcome to the September edition of “Market Perspectives”, the monthly investment strategy update from Barclays Private Bank, which is also available to download as a PDF.
With increasing geopolitical tensions and recession worries, volatility is back at levels rarely seen this year. A systemic volatility strategy may be one solution in such conditions. The strategy usually performs best when volatility is high, aiding portfolio diversification as risk assets underperform.
Heightened political uncertainty, trade tensions and a late-cycle growth slowdown cloud sentiment towards Europe. For now, we remain cautious. However, there are investment opportunities. If policymakers can get their act together, the outlook for Europe could be very promising.
Financial markets increasingly priced in a no-deal Brexit in August. The political drama is likely to further hit economic confidence and sentiment in UK markets, especially sterling. However, recent commitments to more government spending may alleviate the effects of any recession.
Surging levels of financial leverage has helped make BBB-rated bonds the largest segment of the investment grade debt market. However, as fears mount of higher default rates, many doubt the outlook for the bonds. Despite the risks, we believe BBB-rated debt has many appealing features to offer investors.
Despite August’s sudden correction, US equities have traded in a relatively tight range for much of the year. US-China trade tensions show little sign of a deal being struck soon. That leaves central banks as the best drivers of delivering the ambitious policy mix markets need to break decisively higher.
The oil price entered a bear market in August, from its April peak, partly in response to global growth worries and trade tensions. The potential for supply shocks in coming months and plans to extend production cuts hint at a recovery in the oil price. That said, intermittent drops in the price are likely.
Jean-Damien Marie and Andre Portelli
Co-heads of Private Bank Investments