by Blackrock Investment Institute
The regime of greater economic and market volatility is playing out â and not going away. Central banks wonât ride to the rescue in recession, contrary to what investors have come to expect. This regime requires a new investment playbook. It involves more frequent portfolio changes and more granular views that go beyond broad asset classes.
Pricing the damageCentral banks are deliberately causing recession by overtightening policy to tame inflation, in our view. That makes recession foretold. What matters: our view on the pricing of economic damage and our assessment of market risk sentiment. Investment implication: We stay underweight DM equities but expect to turn more positive at some point in 2023. |
Rethinking bondsWe see higher yields as a gift to investors long starved of income in bonds. And investors donât have to go far up the fixed income risk spectrum to receive it. Investment implication: We like short-term government bonds, investment grade credit and agency mortgage-backed securities for income. We stay underweight long-term government bonds. |
Living with inflationLong-term trends of the new regime, such as aging workforces and geopolitical fragmentation, will keep inflation persistently above pre-pandemic levels, in our view. Investment implications: We stay overweight inflation-linked bonds on both tactical and strategic horizons. We are strategically overweight DM equities. |
Copyright © Blackrock
