Just weeks after cutting risk, BlackRock has upgraded US and emerging market (EM) equities to overweight on hopes of Middle Eastern progress and a stronger earnings outlook.
In a sign of shifting market sentiment, the world’s largest asset manager has this week begun to reverse its move away from risk, moving to overweight US and EM stocks.
It comes just weeks after it dialled back risk assets across the board, shifting equities to neutral amid what it described as a backdrop of “durable disruption” from the ongoing US-Israel war on Iran. At the time, it also warned the fallout from the war may be more painful than markets were initially pricing.
In the firm’s latest Weekly Market Commentary video, BlackRock global chief investment strategist Wei Li said the team has noted “tangible evidence” of steps to restore flows through the Strait of Hormuz, alongside clearer signs that broader macro impacts are being contained.
Despite the breakdown of US-Iran negotiations over the weekend, Li said the fact that they agreed to start talks is “concrete evidence of the economic incentives to stop the war”.
The firm said that China is likely factoring into those economic incentives, with a summit planned between US President Donald Trump and Chinese President Xi Jinping in mid-May. As Iran’s largest trading partner, it is understood that China’s “11th-hour call” helped secure ceasefire negotiations between Iran, the US and Israel late last week.
However, Li conceded that a sustained market boost will still depend on a pickup in flows through the Strait of Hormuz after the prolonged disruption.
In the meantime, BlackRock said it is tracking daily traffic through the critical maritime chokepoint using a proprietary tool. According to Bloomberg, shipping through the Strait of Hormuz was still operating at reduced levels on 12 April, before Donald Trump announced an immediate blockade.
“In terms of the macro impact, we see it as significant and don’t necessarily expect a return to the environment in place before the conflict began – but think other drivers can outweigh that impact and go back to moderate risk taking on a tactical horizon,” BlackRock added.
Meanwhile, Li said the move back into equities also reflects rising 2026 earnings expectations for both US and emerging markets, even since the war began on 28 February.
The firm, long bullish on AI, pointed to the theme and broader tech sector as drivers in both markets.
“Companies in South Korea and Taiwan – key producers of the hardware needed for AI – are driving EM earnings upgrades. In the US, the forecast 80 per cent boost to semiconductor stock earnings this year are helping drive upgrades in tech and overall, LSEG data show.”
It added that this is occurring even as equities have pulled back, with tech’s valuation premium having been somewhat eroded.
“The 12-month forward valuation of the US IT over other sectors at its lowest level since mid-2020. At the same time, the tech sector is now seen posting earnings growth of 43 per cent in 2026, up from 26 per cent last year.”
Even if absolute performance disappoints, the firm said it likes US stocks as a “relative preference”, which it expects to hold up better than other markets.
To fund the equity upgrade, BlackRock is reducing its cash-like preference for front-end euro government bonds. This was a position it took a few weeks ago after a sharp pricing of European Central Bank (ECB) rate hikes early in the conflict.
As well as turning “moderately positive risk”, the firm concluded that it would continue emphasising thematic opportunities accelerated by the war.
“We see geopolitical fragmentation supporting defense and aerospace, spurring governments to push even harder for energy independence and leading companies to invest more in supply chain resilience. Along with the AI theme, that will drive demand for infrastructure and power.”
