- BlackRock upgraded European equities to “overweight” from “underweight” in its mid-year outlook, citing the region’s strong policy and public health response to the coronavirus pandemic.
- The firm also downgraded US stocks to “neutral” from “overweight,” as surging coronavirus case counts and fading stimulus measures pose a risk to the market’s bull run.
- Even as European stocks are poised to rally through 2020, credit remains the asset of choice, BlackRock said. The firm maintained “overweight” ratings on both investment-grade and high-yield global corporate debt.
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The world’s largest asset manager downgraded US equities to “neutral” from “overweight,” citing risks of dried-up stimulus measures and rising COVID-19 case counts across the country. Fresh US-China trade tensions and the upcoming presidential election add to a collection of uncertainties.
Those looking to ink gains in the stock market should shift their focus toward Europe, the team led by Philipp Hildebrand, vice chairman at BlackRock, said. The firm upgraded its view of European equities to “overweight” from “underweight,” praising the region’s “solid public health measures and “galvanizing” fiscal policy response to the pandemic.
Europe also boasts a more attractive cyclical exposure than emerging markets, BlackRock said. The EM space was downgraded to “underweight” by the firm due to its continued struggle with containing the coronavirus and less robust policy response.
BlackRock’s mid-year review arrives as the US continues to grapple with soaring coronavirus infections. While other advanced nations have largely curbed the pandemic’s spread, experts warn early reopening efforts revived the outbreak. California, Arizona, Florida, and other states are now the pandemic’s latest US hotspots and threaten to intensify its already dire fallout.
Despite BlackRock’s newly optimistic view of European equities, the firm still eyes credit as the asset-of-choice for investors riding out the virus-fuelled recession. BlackRock maintains an “overweight” rating on both investment-grade and high-yield debt around the world. A prolonged low-rate environment, central bank asset purchases, and attractive income levels all lift corporate debt in a world starved of yield, the firm said.
“We maintain a modest pro-risk stance overall, given our macro assessment of the virus shock and the strong policy response,” BlackRock said. “This is balanced by a preference for up-in-quality assets that have policy backstops and are high up the corporate capital structure.”
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