Barclays Calls a Bottom

After only a few days of market strength, not many analysts are willing to call the bottom, but Barclays is sticking its neck out. “We believe that the latest rally will have stronger legs, and thus marks an inflexion point,” says the shop in a global outlook entitled “Green Shoots Have Arrived.” “We are now recommending that investors become more aggressive and take risk across a broader range of assets.” The shop notes extreme investor pessimism combined with aggressive policymaking in many countries, as well as output falling significantly faster than demand, producing a decline in inventories that sets the stage for better economic readings. If it lasts, this should boost EM and thereby LatAm. “Distressed EM HY spreads overstate near-term default probabilities significantly and should provide attractive risk-adjusted returns, outperforming EM IG, whereas the latter may benefit from the global improvement in credit conditions,” says Barclays. It adds that for LatAm, terms of trade shocks are mitigated by robust balance sheets and limited exposure to cyclical exports. The shop says EM FX will be generally favored by a weak dollar outlook, though it is neutral LatAm FX, with the exception of Mexico, where it sees risks slightly tilted downwards. Barclays’ global view is contrarian in its bullishness and looks set to be tested.