Barclays Equity Gilt Study Suggests Current Policies Unsustainable

Barclays Capital today said in the 56th edition of its annual research publication, the Barclays Equity Gilt Study, that the current focus of policymakers on short-term results suggests that markets and economies are likely to continue to exhibit a high degree of volatility, reminiscent more of the 1970s and 2000s than the 1980s or 1990s. Current policy settings are extraordinarily easy and, if left in place for too long, will result in destabilizing imbalances and stretched asset valuations.

Investment strategies for emerging markets are also examined, concluding that equity returns are likely to continue to outperform those of developed markets. Individual regions and countries are studied for their respective risk properties and relative attractiveness. The recent impact of rapid commodity price rises on inflation is the subject of an additional article, making the case that the disinflationary impact of low cost producers such as China and India is transitioning into an inflationary influence. As a result, the disinflationary trend of the past 30 or so years appears to be turning.

“The Equity Gilt Study offers a unique opportunity for in-depth analysis of medium-term issues confronting investors,” said Larry Kantor, Head of Research at Barclays Capital. “The extraordinarily easy policies put in place during the crisis are providing a significant lift to financial markets, but at the same time they signal important risks beyond the near term. One of the effects already evident is a sharp rise in the prices of raw materials which, along with other factors, suggests that the 30-year trend of disinflation is ending. In the meantime, investors should continue to focus more attention on selected emerging markets, where risk-return trade-offs are likely to continue to be more attractive than for developed markets.”

Major themes of the Barclays Equity Gilt Study 2011 include:

• There are significant risks associated with leaving extremely expansionary policies in place for too long.
• Emerging market economies are set to continue to deliver higher growth and lower volatility than developed markets, which should translate into outperformance in emerging market equities. Emerging market debt, by contrast, has been largely re-priced, and excess returns are likely to be much smaller over the next decade.
• The impressive growth of China and India is increasing demand for commodities at a rapid pace, making it difficult for technological advances to allow production to catch up with demand.
• Optimizing investment strategies for a more volatile investment climate.
• Ageing populations will reduce both stock and bond returns over time, but the excess return on equities is not as large as previously thought.

Notes to Editors:

About the Barclays Equity Gilt Study

The Equity Gilt Study has been published annually since 1956, providing data, analysis and commentary on long-term asset returns in the UK and US. This publication is unique not only for its longevity, but also for its focus on the medium and long term. The UK data base goes back to 1899, while the US data – provided by the Centre for Research in Security Prices at the University of Chicago – begins in 1925.

To obtain a hard copy of the Equity Gilt Study, please contact the Barclays Capital Corporate Communications team.

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 Research discipline, every asset class and every region. In 2010 Barclays Capital was named Best Bank for Credit Research and Best Index Provider in the Credit Magazine Americas Awards, was named Commodities Research House of the Year in the EnergyRisk Asia Awards, ranked #1 for Fixed Income Research by FinanceAsia, ranked #1 for Overall Trade Ideas, #1 for Sovereigns Research, and #1 for Supranational and Agencies Research in the Euromoney Fixed Income Research Poll, and ranked #1 for Bond Market Indexes and # 1 for web-based tools in the Institutional Investor All-America Fixed Income Research Poll.

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 over 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.