The Q2 2019 Global Outlook: Stretching for yield from Barclays Research suggests that while the economic ‘soft patch’ that started in 2018 has been more persistent than expected, much of this drag is cyclical in nature or due to one-off factors and should fade in the coming months.
Watch a three-minute video discussion of Global Outlook: Stretching for yield with Ajay Rajadhyaksha, Head of Macro Research.
In a world of steady but unexciting growth, rock-bottom core bond yields and a quiescent Fed, investors “stretching for returns” is a theme that plays a prominent role in our tactical Q2 asset allocation views. The report recognises that Europe poses one of the biggest risks to a rebound in global growth, but highlights several reasons why the euro area should also recover.
Taking a closer look at emerging markets, it highlights that emerging market assets will be among the biggest beneficiaries as investors stretch for returns and recommends local EM currency and dollar debt over more growth-dependent sectors, such as EM equities.
Labor markets in every major economy are in rude health, and central banks are back in the reflation business, helped by the Fed's about-turn. The global expansion should continue for the foreseeable future, and we do not see any major economy growing below trend in 2019.
Ajay Rajadhyaksha, Barclays Head of Macro Research
The latest Global Outlook delves into several macro themes, including:
Risk factors to a rebound in global growth
The significance of recent policy changes
Potential opportunities for investors searching for yield
Against this backdrop, the Global Outlook recommends an overweight allocation to global equities over fixed income and cautions that because earnings growth is likely to be very weak in 2019, the upside for equities rests predominantly on further multiple expansion.
After years of strong returns and low volatility, investors need to prepare for a world of lower returns and higher volatility as global growth slows over the next several quarters.
About the analyst
Ajay Rajadhyaksha is Head of Macro Research at Barclays, based in New York. He oversees the global research and strategy efforts of the economics, rates, FX, commodities, emerging markets, securitised, and asset allocation teams. Since joining Barclays in 2005, Ajay has held various positions, including Co-Head of FICC Research and before that, Head of US Fixed Income Research and US and European Securitised Research.
Ajay received a bachelor’s degree in Electronics Engineering from the University of Mumbai, an MBA from the Indian Institute of Management Calcutta and a master’s degree in International Management from Thunderbird, the American Graduate School of International Management in Arizona.
Read the full report
Barclays’ Global Outlook, published quarterly, provides an assessment of all major economies and markets and outlines recommendations for investors. Global Outlook: Stretching for yield is now available to Investment Bank clients on Barclays Live or on the Barclays Live app.