A new investment strategy will be needed by 2023, as stated by asset manager BlackRock, who expects the banking and energy sectors to perform well while placing “underweights” on lengthier European government bonds including rising market domestic currency debt.
While the argument for investment credit had improved and the yields on short-term government debt appeared to be attractive, the BlackRock Investment Institute (BII) stated in its 2023 global forecast that longer-term sovereign bonds will be affected by the pressures of increasing interest rates.
Wei Li, global head investment strategist at BII, claimed that market pricing has not yet fully taken into account the macro damage anticipated for next year.
BlackRock anticipates that in their battle against persistently high inflation, central banks throughout the world would overly tighten financial conditions, perhaps leading to a recession the next year.
Accordingly, it retained strategic underweight on developed economy equities while advising investors to choose short-term U.S. Treasury bonds and high-quality corporate debt due to the rewards they provide following this year’s sharp rise in interest rates.
BII President Jean Boivin, who spoke at a media event in New York, claimed inflation may decline but is unlikely to return to the familiar 2% level any time soon.
The final inflation rate that everyone will have to live with, which will be closer to 3% than 2%, cannot possibly be reflected in the markets at this time, he asserted.
BlackRock reported sustained rising inflation may make it less likely for central banks to quickly drop interest rates to help contracting economies. As a result, the tried-and-true strategy of increasing exposure to long-term, secure government bonds in a downturn may not be effective in 2019.
The market may not anticipate a prolonged period of higher policy rates. According to BII’s outlook analysis, this has caused long-term government bonds to be underweighted in strategic and tactical portfolios.
In keeping with that attitude, it has decreased its weighting in both UK Gilts and longer-term European government debt. After being rocked by the unfulfilled tax proposals of former UK leader Liz Truss as well as her finance minister Kwasi Kwarteng, gilts have made a strong comeback in recent weeks.
On the other front of things, as per UBS Chairman Colm Kelleher, the crisis at rival Credit Suisse (CSGN.S) is not directly benefiting UBS (UBSG.S), who was speaking on Wednesday at a Financial Times banking conference.
Rich clients are abandoning the troubled Swiss bank, as claimed by Credit Suisse, which has seen high outflows.
No direct benefit is being received at their expense. Kelleher stated they are seen as respectable rivals dealing with a crisis that is thought to be manageable.
He continued by saying that because they operate in a world where customers move money around when customers approach them directly, they either allow the money to come to them or they allow it to go to their American competitors, and they act accordingly.
He said that wealthy clients of UBS, the largest wealth manager in the world, were keeping more currency than at any point since the 2008 financial crisis.
Kelleher brought up the abandoned $1.4 billion acquisition of Wealthfront, an automatic wealth manager with a U.S. focus which would have allowed the Swiss bank to diversify into the mass opulent wealth market.
According to him, there have been changes in management, valuations, and other factors in the United States.
The chairman claimed that he believed the transaction would have complicated matters for the investors in the Swiss bank and was inconsistent with the business’s otherwise obvious U.S. strategy.
Kelleher denied rumours that he and CEO Ralph Hamers were at odds. He and Ralph are well known to get along extraordinarily well and think highly of one another.