BlackRock: Short-term market risk appetite has improved, and prudently dealing with global macro risks in the second quarter is still the key

Zhitong Finance ·  Apr 3 22:54

Source: Zhitong Finance

On April 3, BlackRock posted on its WeChat account that since this year, the global macro outlook has gradually improved, inflation in developed markets has “cooled down”, monetary policy is facing a shift, and the market's expectations for interest rate cuts have become more clear. Compared with the beginning of the year, the current short-term market risk appetite has improved, and the positive and optimistic market sentiment is expected to continue. Looking ahead to the second quarter, BlackRock believes investors are expected to reap benefits by actively adjusting their portfolios. Now is not the time to launch an “autonomous driving” model to invest; instead, we should actively control the direction of investment. At the same time, it is important to be prudent in dealing with macroeconomic risks.

The three major investment themes are still the main theme

Managing macro risks

Under the current new pattern, inflationary stickiness and structural interest rates are high. The market is still adapting to this new environment, so understanding the macro environment is critical to managing risk.

Increased risk appetite in short-term markets

As inflation in developed markets gradually “cools down,” BlackRock sees an increase in market risk appetite in the short term, and believes that positive and optimistic market sentiment is expected to continue.

The level of inflation in major economies in developed markets has continued to decline since the epidemic reached a high point. It is expected to stabilize at a level close to 2% this year, which will help central banks in these markets to start cutting interest rates. Although the Federal Reserve adjusted inflation and economic growth expectations, the latest forecast announced in March of this year still indicates that the Fed is expected to cut interest rates three times this year by 25 basis points each time.

After the Federal Reserve recently released a signal, BlackRock believes that market pricing reflects high expectations for an overall slowdown in inflation (the level of inflation falls close to the Fed's 2% target, while economic growth remains unchanged), and this situation may face challenges.

Respond carefully to macro risks

BlackRock's core view is that in a supply-dominated world, economic activity will show a low growth trend. For example, despite the resilience of the US economy in 2023, economic activity in the US is still below its pre-pandemic growth level.

BlackRock mentioned in its previous investment outlook that the current new global macro landscape is facing continuing structural inflationary pressure. Due to falling commodity prices, BlackRock believes that the US inflation level may drop further to 2% this year. However, as the drag of commodity deflation gradually subsides, rising wage growth due to tight labor forces has made inflation in the service sector higher than before the pandemic, leading to a rebound in inflation in 2025.

Furthermore, disruptive trends (or structural shifts that drive returns) may also drive up inflation. Therefore, BlackRock believes that the policy interest rates of central banks remain higher than before the pandemic, and the inflation rate may be close to 3%. In this context, BlackRock believes that portfolio management should be carried out flexibly and macro-level risks should be handled carefully.

Control the direction of investment

The market adjusted its expectations for earnings growth in the S&P 500 index in 2024, and the technology sector is expected to account for half of the profit of the S&P 500 index. In January of this year, BlackRock had tactically overmatched views on US stocks, and was optimistic about investment opportunities in artificial intelligence themes.

BlackRock believes that as more and more industries use artificial intelligence, along with the recent signals sent by the Federal Reserve, and the gradual “cooling down” of inflation, all have boosted market confidence. The market's appetite for risk is expected to expand beyond the technology sector. BlackRock once again raised its overmatch view of Japan. After the Japanese economy “stagnated” for decades, Japanese corporate profits gradually stabilized, and wages and inflation gradually recovered, injecting “light” into the Japanese stock market. BlackRock believes that the Bank of Japan's monetary policy stance will benefit the Japanese stock market.

Strategically, BlackRock maintains a prudent and preferential approach to fixed income. In February of this year, BlackRock reduced its share of inflation-linked bonds, but BlackRock's expectations for inflation were higher than market expectations, so BlackRock remained overallocated. BlackRock is also optimistic about earnings opportunities in the private equity market. As for developed market government bonds, BlackRock is relatively optimistic about short-term bonds.


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