The COVID-19 chaos is not a repeat of the 2008 global financial crisis, says BlackRock, but will deliver a ‘sharp and deep economic shock’ to global markets as the firm repositions its portfolios for resilience.
In its monthly update, the firm likened the crisis to a natural disaster rather than a financial crisis.
“Market moves are reminiscent of the darkest days of the financial crisis but we don’t think this is a repeat of 2008,” it said.
“We see the shock as akin to a large-scale natural disaster that severely disrupts activity for one or two quarters, but eventually results in a sharp economic recovery.”
In light of the volatility, BlackRock had moved to a neutral weighting on risk assets and urged investors to diversify their portfolios with government bonds, quality equities, cash and sustainable investments. In equities, it had moved underweight Japanese equities and overweight US ones.
“In equities, we have upgraded the US market both because of its quality bias and expected fiscal stimulus. We move to underweight Japanese equities because of the outbreak’s impact adds to the earlier economic damage of a sales tax increase,” BlackRock said.
“In fixed income, we have reduced Treasury Inflation-Protected Securities to neutral after a huge decline in rates, though we still see value in the long term.”
It said the long-term result of the chaos and its ability to enter a recovery phase would depend on the measures taken by central banks and Government.
“Provided bold policy actions are taken to bridge households and businesses through the shock, activity should return rapidly with limited permanent economic damage,” it said.
“We see encouraging signs from major central banks and governments that such a monetary and fiscal response is starting to take shape. The pledged policy response has been swift – and we expect total fiscal stimulus to be similar in size to that of the global financial crisis but compressed into a shorter timeframe.”