BlackRock cuts developed market stocks with an explanation

The global investment manager and technology provider company BlackRock said on July 11, 2022, that it has reduced its exposure to developed market equities but upgraded its holding of investment credit amid the ongoing economic crisis.

According to the Vice-Chairman of BlackRock Philipp Hildebrand, “The Great Moderation, a period of steady growth and inflation, is over, in our view. Instead, we are braving a new world of heightened macro volatility – and higher risk premia for both bonds and equities. This regime has echoes of the early 1980s, so we’re calling our Midyear Outlook Back to a volatile future. We ultimately expect central banks to live with inflation, but only after stalling growth. The result? Persistent inflation amid sharp and short swings in economic activity. We stay pro-equities on a strategic horizon but are now underweight in the short run.”

According to the investment asset company reports before the COVID-19 pandemic struck it was a remarkable period of stability for growth and inflation. There was a flourishing demand-driven economy with supplies that grows in a steady manner. During the pandemic, binge borrowing caused overheating of the market economy which rapidly suspended over time.

However, the period of the stable economy has ended with constrained production with a “massive shift in spending and labor shortages.” The company described the probable reasons driving inflation in the current economy. Another factor that has triggered inflation is “record levels of debt.”

According to the company, it is a phase of economic volatility where Central banks are compelled to raise rates in order to mitigate inflation. BlackRock said, “We are bracing for volatility in this new regime – our first theme. Central banks are rushing to raise rates to contain inflation
that’s rooted in production constraints. They are not acknowledging the stark trade-off: crush economic growth or live with inflation.”

BlackRock has explained the factors that are deriving inflation such as “politicization of everything,” “unprecedented leverage,” “production constraints,” and “record levels of debt.”

The investment management company has also talked about underweight situations in US, European, and UK equities while holding onto a neutral position in Japanese, Chinese, and emerging market stocks.

According to the Black Rock company, “We believe market pricing of the Bank of England’s rate hikes is unrealistically hawkish in light of deteriorating growth.”

The company reportedly said that it is prompt to upgrade its ideas on investment-grade credit means they will now be focused on the quality of company credit for “Attractive valuations.”

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