Barclays: Global economy on recovery course despite risks

Barclays has revealed its January 2013 edition of Compass, a monthly flagship of wealth and investment management research dedicated to providing investment advice and recommendation to investors across the region.
The report advises investors who continue to face several very visible uncertainties in 2013, which includes the resolution of the US fiscal cliff, the ongoing euro crisis, and a rebalancing of the Chinese economy. Nonetheless, Barclays regional strategists believe that investors’ portfolios should be positioned with a unifying theme in mind — the overall outlook for the global economy and for risk assets, which is slowly but gradually improving.
Kevin Gardiner, head of investment strategy EMEA, for the wealth and investment management division at Barclays, said: "As the cloud begins to lift in 2013, we continue to favor equities and high-yield credit, and recommend smaller than usual positions in cash and especially developed government bonds. We do not expect a major government to default on its obligations, but bonds look very expensive."
Despite a likely tumultuous start to the year, the opportunity set in 2013 for investors looks compelling. Gardiner recommends that investors should focus particularly on small and mid-cap US stocks, as earnings continue to grow faster. With a supportive environment, including the ongoing measures by the Federal Reserve, European Central Bank, and the Bank of Japan, investors should be overweight on developed market equities.
The euro zone economy is likely to remain laggard in 2013. The sheer uncertainty surrounding the single currency is affecting business and consumer confidence, particularly in countries undergoing the most stringent fiscal retrenchment, in particular, Italy and Spain, which both seem set to shrink even further in 2013.
"Although the immediate fortunes of Asia’s economies continue to ebb and flow, buffeted by the global economic tide, the region’s overall growth story remains intact. China, India and Indonesia have intensified efforts to restructure their economies, shifting from investment-led expansion to a more consumption-driven growth model, and we believe these efforts will begin to bear fruit in 2013 and beyond. Despite divergent strategies, Asian economies are well-positioned to capitalize on improvements on the horizon for the global economy," he added.