Japan’s earthquake, higher oil prices, and fiscal worries in both the US and eurozone have dampened economic indicators. Nevertheless, as US growth is expected to accelerate by 3.0-3.5 per cent in the second half of the year, core growth in Europe continues and developed market equities provide the best upside, the firm argues.

“Given our concerns over economic uncertainty and sovereign creditworthiness, we are trimming risk ahead of a very unsettled summer. However, we continue to recommend a moderate level of risk, hence our stance on developed market equities, in contrast to high yield bonds,” says Kevin Gardiner, head of global investment strategy at the firm.

Barclays Wealth recommends an equity portfolio allocation of 43 per cent developed market equities and an 8 per cent allocation to emerging market equities. The firm particularly likes the cyclical play, favouring the energy, consumer discretionary and technology sectors ahead of the more defensive ones, says Gardiner.

Barclays Wealth also recommends allocating funds from high yield and emerging market bonds into cash, which it is overweight for the first time in two years.  “While we recommend switching from high yield bonds to cash, we view this as a transient move as the low level of interest rates makes this an expensive asset class.  We do not expect to want to shelter here for long,” says Gardiner.