Barclays say that the big story of 2013 was the re-pricing of equities versus bonds, as equities soared against a background of plunging bond values.
Now a mixed global outlook for 2014 gives opportunities to seize advantage of cheap European and emerging market equities, according to Barclay's head of equity research, Stu Linde.
In 2014 Barclays believes US GDP growth will continue to gain momentum, climbing to 2.4 per cent.
The improving economic landscape should see the Federal Reserve begin to taper the pace of their asset purchases, and to eventually hike rates. Barclays see tapering beginning in March 2014 and that first rate hike in June 2015.
Elsewhere, the outlook for the Eurozone remains weak, while continued recovery in the UK is anticipated. Japanese growth is likely to be hit by a planned VAT hike.
Stocks vs Bonds
As that economic picture unfolds they recommend that investors continue to place a priority on equities, relative to bonds, even thought equities have less room for upside - they have already experienced considerable appreciation this year.
Barclays see 27 per cent total returns from European stocks in 2014, with European equities currently around 30 per cent cheaper than their US counterparts (measured on a price-to-book basis).
In the US, earnings should grow by nine per cent with total returns of 10 per cent. Japanese equities are set to see 18 per cent total returns in local currency in 2014.
On that basis, Barclays analysts recommend that investors lean towards European and emerging market stocks, rather than US equities.
Barclays see base metals improving in 2014, with nickel their favourite for the first quarter. As US tapering approaches, investors should begin to liquidate their gold and silver holdings.
Barclays' recommended trades:
- Short EUR/USD and EUR/GBP.
- Short AUD/CNH.
- Long USD/JPY.
- Long GBP/CHF and USD/CHF.