A BlackRock investment strategy has cautioned the ongoing trade tensions between the US and China are going to ensue for longer than expected, calling it a new context its institutional investors will have to work in for years to come.
BlackRock recently launched its Investment Institute in the Asia-Pacific region, with its first specialist being Ben Powell, chief Asia-Pacific strategist of the institute. He joined Blackrock Investment Institute three months ago.
Speaking to journalists at the asset manager’s media market outlook in Sydney, Mr Powell said the trade tensions had impacted confidence, particularly on the corporate side, leading to a global manufacturing slowdown and impeding GDP.
The asset management giant has downgraded its allocations to Asian equities and US government bonds.
“So for us, the strategic competition is about much more than trade,” Mr Powell said.
“It’s already morphed into currency. It’s to do with technological competition. And I think increasingly, it’s sort of about everything.
“It’s broadening into this strategic rivalry, which we think is structural and persistent. And persistent means years and decades, not weeks and months. So we think this is a new scenario, a new framework, a new context, that we’re probably all going to have to incorporate into our day jobs for many years ahead.”
In its mid-year global investment outlook, BlackRock said it expects Chinese policymakers to revert to tools such as infrastructure spending and other fiscal stimulus to counter the slowdown.
Significant monetary easing or a sharp currency depreciation were noted as unlikely, as they would run counter to Beijing’s prime objective to maintain financial stability.
The net impact on global economic growth was difficult to quantify, BlackRock added, but the shake-up of longstanding chains could disrupt corporate spending plans, while a softer job market could pressure consumer spending.
Mr Powell said the protectionist push from the US increasing downside risks to the global economy, along with a dovish tilt by the central banks set to depress long-term yields and stretch has created an “usual and challenging macro-investing environment that we’re having to wrestle with.”
“Raising the resilience is the portfolio implications. So we’ve adopted a modestly more conservative approach to risk, but I want to stress that’s not a risk-off approach,” Mr Powell said.
BlackRock has updated emerging market bonds in its portfolio to overweight, along with upping its allocations in European government bonds because it expects the ECB to deliver or even exceed stimulus expectations.
Meanwhile, on home soil in Australia, investors could be forced further into risk assets, Charlie Lanchester, managing director and head of fundamental active equities for BlackRock’s local arm warned.
“The biggest thing that has happened in the last three or four months is really bond yields have collapsed, with the RBA doing its big U-turn and with the 10-year bond rate right now at 1 per cent, it’s starting to make equities look like very good value,” Mr Lanchester said.
“In an absolute sense, for some of the yields that we’re getting in our portfolio, which we think are relatively sustainable and safe, I think potentially, we are going to see retirees being forced further into risk assets.”
He added however with the global economy giving off red flags, investors should be careful in their approach toward risk assets.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].