BlackRock has developed a “completely new macro framework” for investing as a result of the coronavirus shock to the global economy and global financial markets.
“We used to frame things as to where we were in the business cycle,” said Jean Boivin, head of the BlackRock Investment Institute, who discussed the firm’s midyear investment outlook in a webinar. “That is not the story anymore. The shock [of the pandemic] has fundamentally changed the investment environment and landscape … [and] that requires a deeper rethink of how we build portfolios.”
Continuing that theme, Elga Bartsch, who heads up economic and markets research at the BlackRock Institute, said the current global economic downturn “is not a recession” and its reversal will not be a recovery but “a restart” of the economy, which has strategic (longer term) and tactical (short term) implications for investors.
While the cumulative loss of nominal GDP will be far less than the loss from the global financial crisis because of the coordinated fiscal and monetary response around the globe, the investment landscape will shift, according to Bartsch and her colleagues who authored the BlackRock Investment Institute midyear outlook.
“Asset class diversification alone is not going to work anymore,” according to the BlackRock outlook. “Real resilience of portfolios” that can withstand low global yields, climate change and other sustainability-related risks and geopolitical fragmentations as a result of de-globalization will be necessary.”
Resilience and deglobalization are among several themes of the BlackRock mid-year outlook, which also includes “activity restart” of the global economy and “policy revolution,” its term for the coordinated fiscal and monetary response by governments. All have implications for portfolio allocations.
BlackRock’s Short-Term Outlook
BlackRock now favors corporate credit over equities for the short and long term, with an overweight rating on credit and neutral rating on stocks.
In its tactical outlook for the next six to 12 months, BlackRock has downgraded U.S. equities to neutral and upgraded European equities to overweight in part because U.S. policymakers may reduce fiscal relief prematurely while Europe has ramped up stimulus efforts.