{"id":28888,"date":"2023-06-28T21:51:09","date_gmt":"2023-06-29T01:51:09","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/heres-where-blackrock-sees-investment-opportunities-in-new-macro-regime\/"},"modified":"2023-06-28T21:51:10","modified_gmt":"2023-06-29T01:51:10","slug":"heres-where-blackrock-sees-investment-opportunities-in-new-macro-regime","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=28888","title":{"rendered":"Here\u2019s where BlackRock sees investment opportunities in \u2018new macro regime\u2019"},"content":{"rendered":"
Investors have entered \u201ca new macro regime\u201d with monetary policy that probably will be \u201ctight\u201d for the long term and is shifting market opportunities in an unfriendly backdrop for broad asset-class returns, according to BlackRock\u2019s 2023 midyear outlook report.\u00a0\u00a0<\/p>\n
Central banks may be \u201cholding tight\u201d as they continue to lean against inflationary pressures, representing a break from monetary policy being systematically easy before the pandemic when low interest rates prevailed, said Jean Boivin, head of BlackRock Investment Institute, during a media briefing on the report at the asset manager\u2019s New York headquarters on Wednesday.<\/p>\n
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In BlackRock\u2019s view, investment opportunities will be thematic, he said, citing five mega forces: artificial intelligence, aging populations, climate-related concerns spurring a transition to a low-carbon economy, a reshaping of the financial system as private credit expands, and a globalization \u201crewiring\u201d that involves a reorganization of supply chains.<\/p>\n
Meanwhile, economic growth has been \u201cstagnating\u201d and core inflation remains \u201cstubbornly sticky,\u201d said Boivin. BlackRock recommends tilting portfolios toward quality in equities and fixed income, while looking for \u201cgranular\u201d opportunities, according to its midyear outlook report.<\/p>\n
With interest rates expected to stay higher for longer, \u201cincome is back,\u201d but in the slowing growth environment the firm favors investment-grade debt over high-yield, said Wei Li, global chief investment strategist at BlackRock, during the media briefing. She said the front-end of the Treasury-market yield curve is still \u201cattractive.\u201d\u00a0<\/p>\n
Central banks in emerging markets are further ahead in their interest rate-hiking cycle compared to the U.S., said Li, creating debt investment opportunities in such regions as they may be closer to cutting interest rates.\u00a0<\/p>\n
\u201cWe prefer Brazil and Mexico in EM local-currency debt,\u201d the BlackRock report says. Brazil recently signaled rate cuts could be on the horizon, said Gargi Chaudhuri, BlackRock\u2019s head of iShares investment strategy for the Americas, during the media briefing.<\/p>\n
Higher yields available in U.S. fixed income have created a cushion for investors should the Federal Reserve proceed with another rate hike, according to Chaudhuri. Last year bonds broadly suffered losses as the Fed aggressively raised rates from near zero to battle high inflation.<\/p>\n
\u201cEven if the Fed were to raise rates higher than current market expectations, the carry earned from higher coupons can be sufficient to counter losses realized by rising rates,\u201d Chaudhuri said in her iShares 2023 midyear outlook report. The Bloomberg US Aggregate Bond Index \u201cnow yields close to 4.7% and has a duration (or sensitivity to interest rates) of 6.3 years,\u201d her report says, citing data from June 20.<\/p>\n
The chart below, which was highlighted in the iShares report, shows modeled returns for the Bloomberg US Aggregate Bond Index based on changes in 10-year Treasury yields \n TMUBMUSD10Y, \n 3.718%<\/bg-quote>.<\/span>\n <\/p>\n
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The iShares Core U.S. Aggregate Bond ETF \n AGG, \n +0.30%<\/bg-quote> \n has gained 2.5% this year through Tuesday on a total return basis, according to FactSet data.<\/p>\n
Meanwhile, the iShares TIPS Bond ETF \n TIP, \n +0.20%<\/bg-quote>,<\/span> \n which provides exposure to inflation-protected U.S. Treasury bonds, \u201cmakes sense\u201d as an investment opportunity, Chaudhuri said at the briefing.<\/p>\n
Within the stock market, BlackRock Investment Institute says in its report that developed-market equities remain \u201cthe biggest building block by far in our portfolios, especially U.S. stocks, even as we slightly underweight them.\u201d\u00a0<\/p>\n
The U.S. stock market has rallied so far this year, with the S&P 500 \n SPX, \n -0.04%<\/bg-quote> \n up around 14% through Wednesday, according to FactSet data.<\/p>\n
The firm has \u201can overweight to AI as a mega force,\u201d said BlackRock. \u201cOur tilt toward quality already captures AI beneficiaries.\u201d<\/p>\n
BlackRock has gone \u201cgranular to achieve portfolio breadth,\u201d saying it likes Japanese stocks within developed markets while preferring emerging-market equities, according to the report.<\/p>\n
\u201cSlowing growth and sticky inflation in major economies underpin our preference for emerging markets\u201d and income, BlackRock said.<\/p>\n
Aging populations, which \u201cgenerally poses a bigger challenge for developed markets,\u201d result in worker shortages, \u201ca key constraint fueling U.S. inflation now as a tight labor market keeps wage growth elevated,\u201d according to the report. <\/p>\n
Meanwhile, \u201cgeopolitical fragmentation, like the strategic competition between the U.S. and China, is set to rewire global supply chains,\u201d said BlackRock, saying the rewiring is \u201cset to drive up production costs.\u201d\u00a0<\/p>\n
The firm also expects government policies relating to the transition to a low-carbon economy will drive up energy costs over the next decade, a shift that will involve \u201ca massive reallocation of capital as energy systems are rewired,\u201d according to the report. <\/p>\n
On a granular level, BlackRock will be seeking to identify companies and areas that will benefit from these \u201cmega forces.\u201d<\/p>\n
As for the future of finance, \u201con a strategic horizon of five years or longer, we like private credit as an area that may gain from the pressure on traditional banks and tighter credit conditions,\u201d BlackRock said. \u201cWe think private credit could fill the void left by banks curbing lending.\u201d <\/p>\n<\/p><\/div>\n