Graham Marsh, Vice President, Private Client Relationships, Barclays Wealth, believes that keeping the Channel Islands’ trading partner economies out of recession is a must in order to see the islands through this challenging economic climate.
‘Making sense of recent global economic events and what they mean for investors in the Channel Islands has been complicated by austerity measures designed to reduce budget deficits,’ says Mr Marsh.
‘Here in the Channel Islands, the term “budget deficit” was largely unknown because we knew only of budget surpluses and rainy day funds. Over the last two years, however, we have been advised to tighten our belts, reduce public spending and pay more in tax. With austerity measures being introduced on a global basis to fund budget deficits and monetary measures being used to cool some fast growing developing economies, we must be informed and interpret the effects of world economics on the Channel Islands. A second round of quantitative easing round two (QE2) in the US will effectively reduce the UK government debt and inject money into the financial markets, which will then be invested elsewhere and ultimately stimulate the economy. Its effect on Channel Island residents is difficult to quantify, except to say that it is in all our interests for our trading partner economies to be kept out of recession.’
At the recent JIBS (Jersey International Business School) conference, Richard Hay, the renowned international lawyer and principal at Stikeman Elliott’s London office, commented that Brazil, Russia, India and China (the “BRIC” countries) are forecast to represent 61.3% of the world’s economic growth by 2014. This compares to the existing G7 countries of UK, USA, Japan, Germany, Canada, France and Italy, who are forecast to contribute 12.8%. His point: Are the Channel Islands aligned to the right countries for continued future growth?
In our recent Signpost publication (our quarterly macro-economic overview), entitled ‘Approaching the Fall?’, Barclays Wealth forecast that the Bank of England base rate will still be at 0.50% at the end of 2011. ‘Should the base rate remain at 0.50%, it will have a detrimental effect on those investors and depositors who are dependant upon bank interest to fund their lifestyle or retirement,’ added Mr Marsh.
So, what can investors do to optimise their returns and what alternatives exist to obtain investment/deposit income? Barclays Wealth’s Chief Investment Officer, Aaron Gurwitz, comments in the latest edition of ‘Compass’, Barclays Wealth’s monthly investment strategy publication: ‘With further fiscal stimulus off the table for political or market reasons, and with short-term investment rates already at zero, quantitative easing is the only weapon left in policymakers’ arsenals.
‘We’d be happier to see growth reaccelerate without any additional help from policymakers, but until then we remain sceptical and concerned that the developed economies’ weakness will linger, government bond yields will fall further, and the emerging economies will continue to be the principal wellspring of attractive risk-adjusted returns. Therefore, we continue to urge investors not to alter their investment strategies radically. Further, we recommend that investors include an allocation to long-term government bonds in their asset mix and seek out investments – in all regions and in all asset classes – that provide exposure to economic growth in the emerging markets.’
Barclays Wealth advocates that for short-term ‘tactical’ allocation investors look to Government bonds in Q4. Investors should also consider buying Korean, Chinese and Taiwanese equities within their portfolios because of the undervalued local currencies and robust economic data. Thirdly, investments into high quality (S&P rated AAA) Turkish lira-denominated debt offer the opportunity for yields in excess of 7% for two-year maturities. In Turkey we believe that strong domestic economic growth and external factors will likely underpin the Lira.
– ENDS –
For further information contact:
Barclays Wealth, Corporate Communications
Will Bowen 020 3134 7744 firstname.lastname@example.org
About Barclays Wealth
Barclays Wealth is a leading global wealth manager, and the UK’s largest, with total client assets of £153.5bn, as at 30 June 2010. With offices in over 20 countries, Barclays Wealth focuses on private and intermediary clients worldwide, providing international and private banking, investment management, fiduciary services and brokerage.
Barclays is a major global financial services provider engaged in retail banking, credit cards, corporate banking, investment banking, wealth management and investment management services, with an extensive international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs approximately 147,000 people. Barclays moves, lends, invests and protects money for over 48 million customers and clients worldwide.
For further information about Barclays Wealth, please visit our website www.barclayswealth.com.