{"id":54556,"date":"2016-07-27T00:56:39","date_gmt":"2016-07-26T22:56:39","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/blackrock-investment-institutes-mid-year-2016-global-investment-outlook\/"},"modified":"2016-07-27T00:56:39","modified_gmt":"2016-07-26T22:56:39","slug":"blackrock-investment-institutes-mid-year-2016-global-investment-outlook","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/blackrock-investment-institutes-mid-year-2016-global-investment-outlook\/","title":{"rendered":"BlackRock Investment Institute\u2019s Mid-Year 2016 Global Investment Outlook"},"content":{"rendered":"

\u201cLow for Long<\/em>\u201d
\nAs US Fed Stays on Hold<\/p>\n

Investment Grade Debt Appeals;
\nA Cautious Stance on Equities<\/p>\n

Flows to Emerging Markets Resuming
\nAs Cyclical Challenges Recede<\/strong><\/p>\n

The Mid-Year Outlook provides an update on the Institute’s main economic and market assumptions and
\nasset views for 2016 \u2013 a year now marked by geopolitical uncertainties.<\/p>\n

\u201cDownside risks to global growth point to a U.S. Federal Reserve on hold \u2014 and reinforce our view of low
\nglobal interest rates for long,<\/em>\u201d said Richard Turnill, BlackRock Global Chief Investment Strategist. \u201cA
\npotential surprise: a rally in risk assets prompted by investors shifting out of cash and low-yielding assets in
\nsearch of higher returns.<\/em>\u201d <\/p>\n

Trimming Expectations for Global Growth<\/strong><\/p>\n

The global economy is \u201climping along<\/em>,\u201d with the U.S. holding up, and Chinese growth, commodities and EM
\ncurrencies stabilizing, according to the BII. The BII has trimmed its expectations for global growth and, in
\nparticular, sees a risk of a UK recession and expects downgrades to an already poor growth outlook in the
\neurozone as Brexit uncertainty weighs on sentiment.<\/p>\n

Headline inflation is set to rise from depressed levels globally if oil prices stabilize at current levels. The BII
\nsees the U.S. leading any reflationary trend, driven by price increases in the services sector and moderate
\nwage growth. Signs of U.S. reflation could boost risk sentiment, yet would also carry risks: Most asset
\nprices would suffer if the Fed were seen to fall behind the curve on inflation, the BII believes.<\/p>\n

Asset Relationships Breaking Down<\/strong><\/p>\n

Volatility soared when the UK voted to exit the EU, with the VIX index of U.S. equity market volatility spiking
\nto near 2016 highs, the BII notes. At the same time, long-held relationships among various asset classes
\nappear to be breaking down, with implications for portfolio hedges.<\/p>\n

\u201cBetting on yesterday\u2019s winners rising (or losers falling) further \u2014 the momentum trade \u2014 has gotten a
\nlease on life amid low growth and easy monetary policies<\/em>,\u201d said Turnill. \u201cWe see volatility driving more
\ninvestment flows into our favorite assets: high-grade credit, quality equities and dividend growers<\/em>.\u201d<\/p>\n

The impact of monetary policy divergence on asset prices appeared to be waning, and countries have
\nlimited firepower left in their monetary arsenals, the BII says. \u201cFiscal stimulus and structural reforms need
\nto take over from monetary policy to foster growth, we believe, yet fractious politics complicate things,<\/em>\u201d the
\nBII says. \u201cFor example, in the eurozone, Germany does not want to boost spending while it perceives
\nothers as unwilling to reform.<\/em>\u201d<\/p>\n

A More Challenging Hunt for Yield<\/strong><\/p>\n

The hunt for yield is getting more challenging for investors. \u201cBonds yielding 3% or more are going the way
\nof the dodo,\u201d the BII says, with slow global growth, negative interest rates policies, quantitative easing, and
\na flight to quality amid elevated global risks pushing yields even lower.<\/p>\n

\u201cInvestors who want higher returns must take on greater risk \u2014 by increasing leverage or moving into
\nriskier asset classes, which, in turn, propels valuations of risk assets higher,\u201d said Turnill. \u201cFuture market
\nreturns will likely be lower than in recent history. This argues for a more active approach to investing.\u201d<\/p>\n

The BII has turned more positive on most fixed income due to elevated geopolitical risks and easy
\nmonetary policy in a low-growth world. Holding quality government bonds such as U.S. Treasuries makes
\nsense as a portfolio hedge against \u201crisk-off\u201d episodes \u2014 and for investors seeking to match liabilities.
\nNegative-yielding sovereigns such as German government bonds come with a hefty price tag, however, the
\nBII notes.<\/p>\n

On the credit side, the BII sees investment grade corporate debt as attractive in a world hungry for
\nyield. U.S. high yield spreads could widen as risk and illiquidity premia rise with the post-Brexit economic
\nuncertainty, but any sell-offs could create buying opportunities.
\nCorporate bond purchases by the ECB are underpinning European credit markets, the BII notes. \u201cWe
\nexpect the ECB to buy \u20ac4-5 billion of corporate debt per month in the primary market this year, roughly 15%
\nof estimated monthly issuance, and an additional \u20ac1 billion per month in secondary markets,\u201d the BII
\nsays. \u201cThis is especially supportive of higher-quality investment grade debt \u2014 the target of the ECB\u2019s
\nbuying.\u201d<\/p>\n

Pick-Up in Earnings Would Support More Bullish Equity View<\/strong><\/p>\n

The BII is cautious on equities, particularly European stocks, due to negative risk sentiment, elevated
\nvaluations and poor earnings growth. U.S. earnings have been flat for a year now, Japanese earnings
\ngrowth has turned negative, and EM earnings are showing only tentative signs of recovery. Uncertainty
\naround the shape of the UK\u2019s relations with the EU could further crimp European earnings.<\/p>\n

\u201cWhat would make us more bullish? \u201cA pick-up in earnings growth, or a shift toward fiscal expansion and
\nstructural reform,<\/em>\u201d said Turnill. \u201cWe prefer quality equities and dividend growers in the current low-rate
\nenvironment. An added bonus for dividend growers: We see them outperforming when the Fed eventually
\nraises rates.<\/em>\u201d <\/p>\n

\u201cWarming Up<\/em>\u201d to Emerging Markets<\/strong><\/p>\n

The BII is \u201cwarming up<\/em>\u201d to emerging markets (EM) assets, thanks to structural reforms in some countries
\nand a strong demand from investors fleeing negative rates.<\/p>\n

An expected hiatus in Fed rate rises bodes well for beaten down EM assets. In addition, the cyclical
\nchallenges that led to poor EM returns in recent years are now reversing. In particular, the BII likes hardcurrency
\nEM debt for income in a yield-hungry world.<\/p>\n

\u201cPortfolio flows into EM assets have resumed \u2014 with room for upside because most investors are still
\nunderweight the asset class,<\/em>\u201d the BII says<\/p>\n","protected":false},"excerpt":{"rendered":"

More volatility looms for the global markets, torn between anxiety over the
\nfallout of the UK\u2019s vote to exit the European Union (Brexit) and the prospect of a strengthening U.S. economy, according to the BlackRock Investment Institute’s Mid-Year 2016 Global Investment Outlook. <\/p>\n","protected":false},"author":20,"featured_media":54554,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1809,1655,1657,1716,1651,2087,1776,2068],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/54556"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/20"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=54556"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/54556\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/54554"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=54556"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=54556"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=54556"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}