Stay Long Equities – For Now, Barclays Capital Says

Embrace the so-called “reflation trade” over the next few months, Barclays Capital today said in its latest flagship quarterly research publication, Global Outlook: Don’t Fight the Reflation Trade. The report recommends long positions in equities and minimal exposure to government bonds, but cautions investors to watch for signs that central banks are losing enthusiasm for reflation, which Barclays Capital expects to happen later in 2011.

“The environment looks quite favourable for equities now, but as we proceed through 2011 investors need to be alert to a change,” said Larry Kantor, Head of Research at Barclays Capital. “Overstretched valuations may provide that signal, as might central banks in emerging market countries as they pull back from extremely supportive policies over the course of 2011.”

Additional themes of Barclays Capital’s Global Outlook include:

• Current environment favours commodities and credit, although absolute credit returns could suffer from higher interest rates
• The reflation trade bodes poorly for government bonds, especially considering the unusually high levels of sovereign debt in the developed world
• European debt problems have not been resolved, suggesting investors should be long volatility and implement strategies to protect positions from possible sharp reversals
• Easier monetary policy suggests a weaker dollar; appreciation pressures will be concentrated in European and especially commodity and emerging market currencies

About Barclays Capital’s Global Outlook

The Global Outlook research report, published quarterly, provides an assessment of all major economies and outlines the likely implications for global financial markets, including commodities, credit, economics, emerging markets, equities, fixed income and foreign exchange.

About Barclays Capital Research

Barclays Capital is committed to bringing our clients a best-in-class, global research franchise. The firm has a team of approximately 800 professionals covering every major research discipline, asset class and region. In 2010, Barclays Capital ranked #1 among Greenwich Quality Leaders for US Fixed Income Research Quality, #1 for Overall Trade Ideas, Sovereigns Research, and Supranational and Agencies Research in the Euromoney Fixed Income Research Poll, #1 for Fixed Income Research in the Finance Asia Fixed Income Research Poll, #1 for Bond Market Indices and Web-Based Tools in the Institutional Investor All-America Fixed Income Research Poll, was named Best Bank for Credit Research in the Credit Annual Americas Awards, and was named Commodities Research House of the Year in the EnergyRisk Asia Awards.

About Barclays Capital

Barclays Capital is the investment banking division of Barclays Bank PLC. With a distinctive business model, Barclays Capital provides large corporate, government and institutional clients with a full spectrum of solutions to their strategic advisory, financing and risk management needs. Barclays Capital has offices around the world, employs 25,000 people and has the global reach, advisory services and distribution power to meet the needs of issuers and investors worldwide.

For further information about Barclays Capital, please visit our website www.barclayscapital.com.