BlackRock's $6 trillion investment chief lays out how to guard your portfolio against more losses as the risks of more market turmoil increases
Reuters / Brendan McDermid
- Amid the slump in global stocks, BlackRock is advising investors to focus on making their portfolios resilient to further losses.
- "We see good reasons why risks will stay elevated or increase further in the short term, pressuring returns," Richard Turnill, BlackRock's global chief investment strategist, said in a note to clients on Monday.
- He outlined BlackRock's views on major asset classes over the next three months, and where the $6.3 trillion fund giant is advising clients to put their money now.
Playing defense should be investors' priority right now, according to the $6 trillion fund giant BlackRock.
The sell-off in global stocks this month has no doubt rattled market participants, but it's equally given them the chance to find cheaper investing opportunities.
But BlackRock is urging caution for any investor who's eager to go on a buying spree.
"We reiterate our call to focus on portfolio resilience," Richard Turnill, BlackRock's global chief investment strategist, said in a note to clients on Monday.
The sell-off precedes one of the most fruitful periods for short-term investors: earnings season. If companies announce quarterly profits that top Wall Street's expectations, their shares can see larger-than-usual gains. And analysts expect good news from corporate America over the next few weeks, with S&P 500 companies forecast to report 20%+ earnings growth for a third-straight quarter according to FactSet.
But with the reward of earnings season also comes risk.
"Companies that disappoint on third-quarter earnings and fourth-quarter guidance risk being acutely punished," Turnill said.
The trade dispute between the US and China is one of the issues that investors are keenly awaiting guidance on, particularly from global companies that benefit from freer trade and cheaper production outside the US.
A trade war is the number-one threat to the US-led global economic expansion, according to Turnill.
"We like quality exposures within equities and prefer the US within developed markets due to earnings resilience and stronger balance sheets," Turnill said.
"In fixed income, we favor short-end bonds but are starting to see opportunities further out on the yield curve in the U.S. and Europe. Over the long term, the rise in yields should eventually point to higher returns across asset classes. Yet we see good reasons why risks will stay elevated or increase further in the short term, pressuring returns."
Here's a further breakdown of BlackRock's views on major asset classes over the short-term, specifically the next three months:
- US stocks: Overweight. Strong earnings momentum, corporate tax cuts, and fiscal stimulus underpin its positive view, and technology remains its most-favored sector.
- European stocks: Underweight. Relatively muted earnings growth, weak economic momentum, and political risks are challenges.
- Emerging-market stocks: Overweight. Attractive valuations, economic reforms, and strong earnings growth support the case for EM stocks.
- Emerging-market debt: Neutral. BlackRock prefers hard-currency over local-currency debt and developed market corporate bonds. Slowing supply and broadly strong EM fundamentals add to the relative appeal of hard-currency EM debt. Trade conflicts and a tightening of global financial conditions call for a selective approach.
- US credit: Neutral. Sustained growth supports credit, but high valuations limit upside. BlackRock favors investment grade (IG) credit as a counterweight for equity risk. Higher-quality floating rate debt and shorter maturities look well positioned for rising rates.
- Commodities and currencies: No consolidated view. Global supply constraints are likely to underpin oil prices. Trade tensions add downside risk to industrial metal prices. BlackRock is neutral on the dollar. Rising global uncertainty and a widening US yield differential with other economies provide support, but an elevated valuation may constrain further gains.
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