Global Outlook report sees a period of protracted weakness in China, led by the need to rebalance the economy away from an unsustainably high rate of investment

Weak global growth, driven by weakness in emerging markets, especially in China, drove the Q3 market selloff, according to Barclays’ latest flagship quarterly research publication Global Outlook: Position for mediocre growth. With China deceleration unlikely to reverse any time soon, and developed market growth expected to remain steady but not spectacular, investors should tilt their equities exposure toward a more neutral position, from the modest overweight position recommended in the last Global Outlook.

“China faces an extended period of strong headwinds related to the long-awaited need to rebalance its economy away from unsustainably high investment spending,” said Ajay Rajadhyaksha, Head of Macro Research. “The prospect of further weakness in China, together with mediocre growth in advanced economies, suggests investors should position for a low growth environment in the months to come. There is no quick bounce-back coming.”

While the growth of advanced economies has been subpar by historical standards, the global consumer has been a source of strength in the US, Europe and Japan, with consumption helped by tightening labor markets and weak inflation. Tighter labor markets in the US, the UK and Japan mean that central banks may be more cautious about further monetary policy accommodation, despite a subdued inflationary outlook driven by softer demand and excess capacity in China and continental Europe. Government bonds appear less attractive as a ‘safe haven’ than during earlier stages of the recovery.

Valuations in most broad asset classes seem fair, but not particularly attractive. Equity valuations were improved by the Q3 sell-off, but they are not priced at a compelling discount. Credit valuations have also improved as a result of a slower sell-off, and present opportunities as spreads have widened and underlying fundamentals remain strong.

Other recommendations in the Global Outlook include:

  • Oil prices are likely to consolidate near current levels for the next few months
  • Continue to expect US dollar strength and downside for Euro and commodity currencies
  • Within equities, the European stock market looks cheap against the US

Barclays’ Global Outlook report, published quarterly, provides an assessment of all major economies and markets, and outlines recommendations for investors.

Barclays is an international financial services provider engaged in personal, corporate and investment banking, credit cards and wealth management with an extensive presence in Europe, the Americas, Africa and Asia. Barclays’ purpose is to help people achieve their ambitions – in the right way. With 325 years of history and expertise in banking, Barclays operates in over 50 countries and employs over 130,000 people. Barclays moves, lends, invests and protects money for customers and clients worldwide. For further information about Barclays, please visit our website www.barclays.com.

Barclays CapitalJames White, +44 (0) 20 7773 2800james.xa.white@barclays.comorAndrew Smith, +1 212-412-7521andrew.x.smith@barclays.com

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