Labor Market Will Trump Higher Gas Prices

An improving labor market will offset the impact of higher oil prices and underpin stocks according to Kevin Gardiner, the head of global investment strategy at Barclays Wealth in London.


“While some setbacks for developed equity markets in the weeks ahead would not be surprising, we recommend, particularly to those who are under-invested, that they use such volatility as an opportunity to add equities” said Gardiner in an interview with CNBC on Friday.

“The global economic recovery can withstand the recent run up in oil pricesas improvements in the labor market should outweigh the effects of higher oil prices on consumer sentiment,” said Gardiner, who does not believe crude prices will reach previous highs of $140-$150 a barrel.

With interest rates set to rise in Gardiner’s view he is cautious about the prospects for the bond market.

“It is the prospect of rising rates, and not the concern over sovereign creditworthiness, which makes us tactically wary of bonds,” said Gardiner.

Buy Chinese Stocks

With the risk of overheating the biggest concern for Chinese officials at the moment, Gardiner is recommending investors take a look at the Chinese equity market.

“The 12th Five Year Plan (2011-2015) targets sustainable economic growth, with an emphasis on domestic demand and seven strategic industries, including energy saving & environmental protection, alternative fuel cars and bio-technology,” said Gardiner.

“Chinese equities valuations are attractive. The MSCI China’s current price-to-earnings multiple of 11.6 times remains below its 5-year average of 13.5 times and below the MSCI Asia ex-Japan price-to-earnings multiple of 13.0 times.”

“Both short-term and long-term investors accumulate Chinese stocks, especially on any market weakness,” he added.