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Barclays adviser says they should take opportunities while market remains bullish

Flat-footed retail investors in Asia should follow their counterparts in Europe and America and jump into the bullish equities market before it is too late, says senior Barclays investment adviser Gary Dugan.

London-based Mr Dugan said during a recent visit  that the equities market was 'generally bullish' and should remain that way for the next two to three years.

His advice to retail investors in Asia was simple: join the party early. 'My continued worry with retail investors is that they only wake up to things when there is about six months left in the bull market to go,' Barclays Investment Services chief investment officer says.

'We'd like to really bang on the door this time and say don't leave it because the only time they ever get enthusiastic is when it is all over.'

He says retail investors have to recognise that while there is risk in putting a foot in the market today, the potential returns are still there. 'The day there's no risk there is the day when it's within six months of the peak in the market.'

Mr Dugan says this summer has seen a big change in sentiment among investors, particularly in the United States and Europe, but the same was not true for Asia.

'Asia stands out as the one place where retail investors have not gotten involved yet. I think a lot of people are feeling it must be over. In reality we're only halfway through, but the only time they get excited is if it goes up another 20 per cent and gets close to fair value,' he says.

He likes capital goods because a lot of companies globally over the past two years have been spending most of their free cash on increasing dividends and share buybacks. This summer, investors changed their attitude and now want to see companies expanding  capacity.

'The ratio of capital spending to revenues in the US is at a 10-year low. So there's an enormous upside potential for capital spending as long as corporate confidence remains,'  he says.

Pharmaceuticals have also gone beyond the problem of generic rival goods, he says. 'The pace at which new products come to market is still working fine. Purely in terms of numbers of new products, the sector is going to see a real significant rise over the next 18 months. The sector is at around a 20 per cent discount to what it has traded on historically. Cyclical traders aren't selling right now.'

If there's one risk, it is inflation. 'Inflation tends to kill every cycle when it rears its ugly head - global inflation, but particularly in the US. The US doesn't have a huge amount of spare capacity,' he says.

Central banks are not going to increase interest rates too aggressively. He thinks they are employing sensible policies and the US Federal Reserve would probably raise interest rates a further 75 basis points this year with possible small increases next year.

He would like to see Federal Reserve chairman Alan Greenspan hand over the reins early next year to maintain stability.

'We don't want to see anyone try to buy their credibility by being aggressive during a rate-tightening cycle. That will basically squeeze the pips out of the economy. I don't think they're going to have to do that,' he says.

While he thinks oil prices have basically peaked, there are still opportunities.

'The equity market, longer term, is still discounting an oil price of about US$35, not US$45. Therefore, many of the energy stocks to us are still good value.'



Retail investors urged to pounce