Barclays Turns Negative on Stocks as It’s ‘Time to Play Defense’

(Bloomberg) -- After months of advising investors to buy stocks, Barclays Plc now prefers bonds.

A slowing global economy, unresolved U.S.-China trade tensions and the threat of a hard Brexit are among factors denting the appeal of riskier assets such as global equities, according to Ajay Rajadhyaksha, head of macro research in New York.

It’s “time to play defense,” Rajadhyaksha wrote in a note Thursday. “Investors should use the September equity rebound and bond market sell-off as a chance to reduce some risk.”

A bond market rally from the U.S. to Australia has stalled this month, as some global economic data steadied and worst-case outcomes for events like the trade war and Brexit failed to materialize. Yields on benchmark 10-year Treasuries have risen over 20 basis points to 1.7% and the S&P 500 Index has risen 2% and the MSCI All-Country World Index is up 2.2%.

Rajadhyaksha didn’t go entirely risk-off, however.

“This is not a call to lock in negative yields in Germany and Japan,” he said, “but to overweight higher yielding fixed income, such as emerging-market dollar debt, U.S. corporate debt, and agency mortgage-backed securities etc.”

Barclays also recommends “going down the credit curve in the U.S. and Europe,” according to the note. “Underpinning this view is our belief that the 2019 bond rally is here to stay, given rock-bottom inflation expectations and a slowing global economy,” Rajadhyaksha said.

To contact the reporters on this story: Ruth Carson in Singapore at rliew6@bloomberg.net;Stephen Spratt in Hong Kong at sspratt3@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Joanna Ossinger, Cormac Mullen

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