With most bonds continuing to trade above their par values, and at levels that leave them very sensitive to changes in interest rate expectations, Barclays strongly favours stocks over bonds, the bank said in a report.

Barclays continues to prefer corporate to government securities, and stocks to most bonds, according to “Compass”, the bank’s wealth and investment management monthly flagship research dedicated to providing investment advice and recommendation to investors across the globe. The report advises investors that on a medium and longer term.

Kevin Gardiner, head of Investment Strategy EMEA, for the Wealth and Investment Management division at Barclays, said: “Growth may be anemic, but it’s not at stall speed, nor likely to be. Bonds are the assets which are trading expensively, and stocks – even after their rally – look much cheaper.”

“Bonds, by contrast, remain expensive. High yield remains our strategically-favoured bond asset class, though prospective returns are likely to be lower than in previous years. We advise a strategically underweight position in government bonds – and suggest using any rallies to reduce strategic holdings. We also advise a tactical underweight in investment grade credit, which is fiercely expensive too.”

Weakening investor sentiment towards gold has caused many market participants to question the sustainability of the bull-run. As gold is becoming more accessible to the wider market, traditional demand dynamics are changing.

Precious metals do help diversify portfolios, but they are not a foolproof hedge against anything, and the monetary claims made recently in respect of gold have been overstated. With much uncertainty in the gold market at present, prices will likely be range bound as investors grapple with the recent fragility of the market.

Commenting on gold, Gardiner said, “While global economic events will no doubt continue to impact the value of the commodity, and as low inflation drives down demand, there is still a level of optimism for the value of gold as shown in our research.”

“Gold remains a highly emotional (and volatile) investment and, because of this, we would recommend that clients have an appropriate exposure to gold in line with their risk profile. We remain neutral on commodities, meaning that investors with moderate risk tolerance should have a 5 per cent allocation to all commodities within their portfolio, and of that, only a small portion should be allocated to gold.

“Overall, we look forward to monetary conditions eventually normalizing – even though it will probably cause short-term volatility – because it will signal confidence in the ability of the big developed economies to stand on their own two feet. That is why we expect the primary trend in stock prices to remain positive,” Gardiner concluded. – TradeArabia News Service