MARKET OUTLOOK

BlackRock's latest asset class views

Directional views

Six to 12-month tactical views on major global assets from a U.S. dollar perspective, March 2020

Capital at Risk: All financial investments involve  an element of risk. Therefore, the value of your investment and the  income from it will vary and your initial investment amount cannot be guaranteed.

Underweight
Neutral
Overweight
Equities
We previously downgraded global equities to neutral. The coronavirus outbreak is disrupting economic activity and supply chains. The outbreak also poses risks to corporate earnings, in our view. Accommodative monetary policy is a support. We now favor rebalancing back toward benchmark weights as markets fall.
Credit
We previously cut our overall view on credit to neutral. Downside risks and increased uncertainty around the economic outlook reduce our preference for risk assets. We could also see a risk of temporary liquidity crunches. We remain neutral as coupon income is crucial in a world starved for yield, especially at a time government bond yields are hovering near record lows.
Government bonds
We stay neutral overall on global government bonds. They act as ballast against risk-off episodes. Additional easing by major central banks has become more likely, in our view. We favor U.S. Treasuries over government bonds in other regions, but see risks of a diminishing buffer against equity market selloffs and a snap-back in yields from historically low levels.
Cash
We maintain our neutral position on cash for risk mitigation. We also see cash as a robust buffer against risks around regime shifts, especially those triggered by a negative supply shock that could drive both stocks and bonds lower together.
Note: This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.

Granular views

Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, March 2020

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Underweight
Overweight
Previous
Change in view
New
United States
We have upgraded U.S. equities for their relative quality bias and our expectation of a sizable fiscal response in the weeks ahead to complement the Federal Reserve’s aggressive monetary easing.
Euro area
We have kept European equities at underweight. We see greater upside elsewhere in an eventual recovery. Europe is more dependent on foreign trade and is now the center of the virus outbreak.
Japan
We have downgraded Japanese equities. The coronavirus shock could drag the country into a technical recession. There is limited monetary and fiscal policy space to offset the outbreak’s impact.
Emerging markets
We reduced EM equities to neutral. Valuations have cheapened but the global economic slowdown and cheaper oil challenge many EM economies and the outbreak tests their public health systems.
Asia ex-Japan
We upgraded Asia ex-Japan equities on prospects of an eventual growth uptick. We see China as in the early stages of restarting its economy and having more policy space to revive activity.
Momentum
We recently lifted momentum to neutral. The factor has outperformed in the growth slowdown, partly due to its exposure to “secular growers” in the tech industry as well as dividend paying bond proxies.
Value
We recently downgraded value to underweight. Value has historically performed best in periods of accelerating growth, and we now see the coronavirus outbreak posing downside risks to the economy.
Minimum volatility
We recently upgraded min-vol for its defensive properties in a growth slowdown. The factor has historically performed well late in the cycle.
Quality
We hold quality as an overweight. We like that it has been resilient in late-cycle periods, despite relatively high valuations.
U.S. Treasuries
We maintain U.S. Treasuries at neutral, preferring the front end of the curve. Yet we acknowledge the risk of a sharp snapback in yields from record lows.
Treasury Inflation-Protected Securities
We have reduced TIPS to neutral. After a huge decline in rates that makes the entry point less attractive. We still see potential for higher inflation over time and like TIPS in strategic allocations.
German bunds
We remain underweight bunds. They provide little cushion against major risk events, but would not add to our underweight after recent underperformance versus U.S. Treasuries.
Euro area peripherals
We have upgraded euro area peripheral government bonds to neutral. We based  this on cheapening valuations and the potential for expanded support from the European Central Bank.
Global
investment grade
We remain underweight. The sector looks unattractive despite a recent sharp widening in spreads, due to slowing earnings, relatively high leverage and low coupon rates.
Global high yield
We stay overweight global HY as a source of income, despite recent underperformance. We avoid energy as a lower for longer oil price challenges the ability of issuers to refinance near-term maturities.
Emerging market –hard currency
We have recently downgraded hard currency EM debt to neutral. We prefer to take our risk in local currency EM debt. Default risks may be underpriced.
Emerging market – local currency
We remain overweight, despite recent underperformance driven by a stronger U.S. dollar. The asset class looks attractive with yields above 5% -- and currency depreciation appears excessive.
Asia fixed income
We stay overweight based on a slowdown in the spread of the virus, Chinese monetary easing, low energy exposure and reasonable relative value. We see demand from Chinese and regional investors.

Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a U.S. dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.