This week, BlackRock Investment Institute has released its 2023 Midyear Outlook, which looks at the new macro regime and investment opportunities.
BlackRock Investment Institute believes that there in a new macro regime that provides different but abundant investment opportunities.
“Persistent supply constraints are compelling major central banks to hold policy tight, creating greater macro and market volatility. We find opportunities by getting granular within asset classes and harnessing megaforces: structural shifts like the rise of artificial intelligence and the rewiring of globalisation that can drive returns now and in the future,” BlackRock said in its outlook.
The asset manager thinks that investment opportunities in this economic environment are different from those in the past. It has updated its investment themes as a result, kicking off with holding tight.
“Markets have come around to the view that central banks will not quickly ease policy in a world shaped by supply constraints – notably worker shortages in the US,” BlackRock said. The firm sees central banks being forced to keep policy tight to lean against inflationary pressures. “This is not a friendly backdrop for broad asset class returns, marking a break from the four decades of steady growth and inflation known as the Great Moderation,” BlackRock continued.
Yet the firm believes there are new opportunities, its second theme. “Greater volatility has brought more divergent security performance relative to the broader market. Benefiting from this requires getting more granular and eyeing opportunities on horizons shorter than our tactical one. We go granular by tilting portfolios to areas where we think our macro view is priced in,” the firm said.
BlackRock’s third theme is all about harnessing megaforces. “These are structural changes we think are poised to create big shifts in profitability across economies and sectors. The mega forces are not in the far future – but are playing out today,” the firm added. BlackRock believes that these mega forces are digital disruption like artificial intelligence, the rewiring of globalisation driven by geopolitics, the transition to a low-carbon economy, ageing populations, and a fast-evolving financial system.
Asset allocation
Slowing growth and sticky inflation in major economies underpin the asset managers preference for emerging markets and income in 2023.
Developed market equities remain the biggest building block by far in its portfolios, especially US stocks, even if it is slightly underweight in them. BlackRock implements an overweight to AI-related equities in developed markets which span sectors. Its tilt towards quality captures AI beneficiaries. The firm likes Japanese equities within developed market stocks.
Over the next six to 12 months, BlackRock prefers emerging market equities and local emerging market bonds. Over the long term, it is overweight in developed market equities, saying that a longer-term investor can look past some of the near-term pain. For income, it prefers short-dated US Treasuries, US mortgage-backed securities and high-grade credit. On a strategic horizon of five years or longer, BlackRock likes private credit as an area that may gain from the pressure on traditional banks and tighter credit conditions.
Original Article: https://www.wealthbriefing.com/html/article.php?id=198390
