Economic Commentary Q1 2021
We have entered a new investment order.
The Covid-19 pandemic has accelerated profound shifts in how economies and societies operate. We see transformations across sustainability, inequality, geopolitics and macro policy. This is reflected in our 2021 investment themes: The New Nominal, Globalization Rewired, and Turbocharged Transformations. The new investment order is still evolving, and investors will need to adapt. Yet the features are becoming clear, and we believe this calls for a fundamental rethink of portfolio allocations – starting now.
The New Nominal
We see stronger growth and lower real yields ahead as the vaccine-led restart accelerates and central banks limit the rise of nominal yields – even as inflation expectations climb. Inflation will have different implications to the past.
Strategic implication: We underweight government bonds and see equities supported by falling real rates.
Tactical implication: Our low rate outlook keeps us pro-risk. We like U.S. equities and prefer high yield for income.
Globalization Rewired
Covid-19 has accelerated geopolitical transformations such as a bipolar U.S.-China world order and a remaking of global supply chains – placing greater weight on resilience and less on efficiency.
Strategic implication: We favor deliberate country diversification and above-benchmark China exposures.
Tactical implication: We like EM equities, especially Asia ex-Japan, and are underweight Europe and Japan.
Turbocharged Transformations
The pandemic has added fuel to pre-existing structural trends such as an increased focus on sustainability, rising inequality within and across nations, and the dominance of e-commerce at the expense of traditional retail.
Strategic implication: We prefer sustainable assets amid a growing societal preference for sustainability.
Tactical implication: We take a barbell approach, favoring tech and healthcare as well as selected cyclical exposures.
Source: Blackrock 2021 Global Outlook. January, 2021.
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