Hedge Greek Spillover, Emerging Stocks Attractive Barclays -- Barron's Blog

        By Dimitra DeFotis

        In a fresh take on asset allocation, Barclays favors Poland and Hungary among emerging market regions it views as compelling as growth picks up in the eurozone and elsewhere.

        Barclays said in late June that it was a good time to buy cyclically sensitive stocks as growth reaccelerated globally, despite the risk posed as the U.S. Federal Reserve moves closer to raising interest rates. Since, "Greece stepped closer to an exit from the euro" and the Chinese market dropped like a rock, but these shocks disippated, contend Guillermo Felices, Jim McCormick and Krishna Goradia. They write:

        "... Assuming a [Greek bailout] deal is finalised, the main risk will be its implementation by the Greek authorities. The European Central Bank should remain supportive as long the Greek parliament approves the new debt package by 20 July ... we remind investors that the asset classes that have been most at risk in the event of extreme Greece stress are peripheral debt and bank credit followed by the EUR [the euro]. We still think these would be good hedges for investors looking for protection of bullish exposure."

        The Barclays team adds:

        "The case for emerging market equities (ex China) has become even more compelling given the prospect of global growth re-acceleration, cheap valuations, depressed sentiment and underweight positioning, in our view. We favour those markets that benefit from the expected continuation of the recoveries in the euro area (Poland, Hungary) and the U.S. and China (Taiwan, Korea). We remain cautious on emerging market fixed income and currencies. The combination of more attractive valuations, limited spillovers from Greece and weaker Chinese equities on growth outlooks, lower oil prices, and biases to keep monetary policy accommodative in major economies, makes an even stronger case for cyclical assets in the second half."

        They recommend long positions on equities in Poland. Hungary, Taiwan and Korea as they benefit from euro-area recovery. In currency, they recommend a short EURJPY as a good hedge against further Greece woes. They also recommend a short EUR/INR [Indian rupee] trade. One vehicle for that trade: the WisdomTree Indian Rupee Fund ( ICN), which is up 3.2% so far this year.

        The Global X FTSE Greece 20 ETF ( GREK) was up 6.7% in recent trading. And after a bank debt upgrade from Fitch, the Market Vectors Egypt Index ETF ( EGPT) is up more than 2%. But China shares are taking a nosedive again, the iShares China Large-Cap ETF ( FXI) is down 2.4%, the Deutsche X-trackers Harvest CSI 300 China A-Shares Fund ( ASHR) down more than 7%, and the Market Vectors China ETF ( PEK) down 6.9%. The Vanguard FTSE Emerging Markets ETF ( VWO) is down 1.3%.

        (END) Dow Jones Newswires

        July 15, 2015 15:20 ET (19:20 GMT)