The ‘harm’ is not being seen; It’s time to reduce risk By


By Laura Sanchez – “A new moment of macroeconomic volatility is underway. Business activity is plummeting and inflation remains high. Central banks are responding with aggressive rate hikes without fully acknowledging the damage and recession risks remain unaddressed. We reaffirm our lower risk stance and prefer credit to equities.”

This is how resounding BlackRock (NYSE:) managers are shown in their weekly report. As they warn, “business activity is already stagnating in the US and Europe, as business surveys show. However, the (Fed) and the (ECB) are expected to hike rates aggressively with the sole aim of fighting inflation.”


According to these analysts, “a tightening of monetary policy will cause recessions”, thus reaffirming their global approach of assuming reduced risk. “We favor credit given our view that a major default cycle is unlikely and we are underweight equities given the recessionary impact we see ahead.”

BlackRock forecasts a mild recession in the US and a deeper one in Europe, given the energy crisis. “But we don’t think risk assets have accepted the combination of deteriorating activity and central banks.”

“Our relative preference for high-quality credit versus equities remains valid for one important aspect: valuation. Rising spreads and government bond yields increase expected returns. And the strength of balance sheets means investment-grade credit could weather a recession better than stocks.

“We haven’t bought the falls in equities all year. The combination of an impending recession and higher rates is not yet fully reflected in equity valuations, in our view. If both factors are taken into account, we would return to being neutral in terms of the actions”, they point out.

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BlackRock is also underweight US Treasuries. “Overall, we see long-term yields rising as investors demand a higher term premium – that is, the extra return investors demand to offset the risk of holding long-term bonds amid persistent inflation. and a high debt load,” they say.

“As for European public debt, we believe that the market’s assessment of the ECB is unrealistic, given the deterioration in growth prospects as a result of the energy crisis,” they add.

In conclusion, “the new regime of macroeconomic volatility is taking root with weaker growth, persistent inflation and volatile markets. Our global approach to the portfolio leads us to maintain our tactical views, especially with the macroeconomic deterioration.”

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