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Barings moves to defensive assets PDF Print E-mail
News - Latest
Friday, 08 June 2012 13:50
Baring Asset Management has moved progressively to more defensive asset classes such as cash and developed government bonds in its multi-asset portfolios, according to its latest global macro research.

Percival Stanion, head of asset allocation and chairman of the strategic policy group at Barings, said: “The prospects for an agreed path for resolving the ongoing sovereign debt crisis in Europe look unlikely ahead of the next Greek election and with the electorate increasingly vocal and opinionated across the continent, the outcome looks even more uncertain.

“We hadn’t been expecting much from Europe but even our expectations relative to the consensus seem overly optimistic today as the strains on the European financial system grow, particularly in places like Spain.”

In light of this view, Barings’ multi asset team has maintained its support for the US dollar and adopted a more cautious approach to equities, particularly to economically-sensitive areas such as Materials and Industrials, whilst concurrently upgrading defensive sectors such as Healthcare.

Percival continued, “We are taking the necessary steps to protect our assets from what we see as increasingly stifled European economic growth. Greece’s strong support for rejectionist parties is growing as the Greek population is tired from three years of austerity. If we do see a Greek exit, an escape path will appear accessible to other eurozone countries – the threat of contagion would spread to the rest of the Eurozone periphery.”

In France, Francois Hollande’s election win has caused tension between the eurozone’s largest and most influential member states. Furthermore, Germany’s determination not to undermine its own credit rating and unwaveringly tough stance on issues such as permitting a surge in inflation to allow an improvement in southern European competitiveness is helping to fragment and divide political opinion. These issues are not easily resolved and are likely to be a constant threat to markets for the time being according to Barings.

Barings remains favourably exposed towards the US where it sees growth despite looming public sector spending cuts at the end of the year.

In Asia, Barings thinks that Japan’s continued growth is encouraging following the rebuilding programme on the back of last year’s earthquake and nuclear incident. In contrast, it believes China continues to disappoint and the recent weakness in Asia’s largest economy has brought significant downward pressure on industrial commodity prices, including oil. More optimistic investors are still expecting an aggressive government stimulus programme and there have been more encouraging comments about accelerating infrastructure spending. But this might be too little, too late.  

A combination of policy stalemate in Europe, US spending cuts and Chinese inertia mean that there is an increased chance of the global economy slipping back into recession. Barings expects central banks to announce further asset purchase programmes, but its capacity to lift markets permanently seems to be diminishing.   

Percival Stanion concluded, “Markets increasingly look to policy makers around the globe for leadership and policy clarity. In an environment where clarity is in short supply, it is likely that markets will remain volatile and risk premia elevated.”

 

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