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BlackRock Smiles On Asian Equities, Cites Vaccines, Macro-Economic Tailwinds

Editorial Staff, 27 November 2020

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With $7.808 trillion of assets under management (as of 30 September), BlackRock's asset allocation calls and views carry considerable clout, as its AuM is greater than that of all sovereign wealth funds combined.

Investment giant BlackRock said it is more confident that the outlook for Asian risk assets, such as equities, will improve in 2021 as COVID-19 vaccines and supportive economic policy propels a rebound.

With $7.808 trillion of assets under management (as of 30 September), BlackRock's asset allocation calls and views carry considerable clout, as its AuM is greater than that of all sovereign wealth funds combined.

“We will enter the new year optimistically on the protests for the global economy and risk assets, especially Asian credit and equities,” senior figures at the US firm said in a note about the year ahead. “This does not mean we have turned the page on the virus, and the recent resurgence in the US and Western Europe may continue to undermine the good news on the vaccines.”

To justify its “constructive” view, BlackRock said understanding of COVID-19 has increased; economic stimulus measures will work through the economy, and there may be more global co-ordination of efforts over trade and vaccines under a new US President (Joe Biden).

Fixed income
The firm said prospects for Asian fixed income are “bright,” particularly because China is opening its onshore markets, increasing global liquidity at a time when there is a shortage of assets able to meet clients’ income and yield needs. The risk of defaults appears to be lower in China than in other countries such as the US and broader emerging markets, because China was further ahead in reducing debt leverage. The firm said there are also opportunities for diversification in India, Indonesia, and other parts of Southeast Asia.

On the equity side, BlackRock said it is “constructively bullish” on Asian equities, although it doesn’t predict markets to rise in a straight line. It argued that Asian equity valuations are “reasonable,” countries’ policies are positive, and a corporate earnings rebound appears probable. 

“Many Asian economies are closer to pre-virus activity levels helped by the earlier lockdowns, more testing and tracing of infections, and societies’ preventative measures. These actions lessened the health impact and need for outsized fiscal and monetary interventions, giving policymakers more room to pull levers if required,” it said. 

Talking about specific economic sectors, BlackRock said much “good news” has been priced into areas such as healthcare and technology, so it is buying “out-of-favour” stocks instead, such as travel-related stocks and industrial/material stocks in China. It has also added some auto stocks from India, and built positions in banks that have suffered margin compression from the low-rate environment.

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