Investors might expect to see a slowdown in global growth and corporate earnings in 2019 as the US economy is entering a late-cycle phase, according to BlackRock.
As far as risks were concerned, markets would be more vulnerable to fears that a downturn was near even if the actual risk of a US recession was low, the investment professionals said.
What is more, trade frictions and a US-China battle for supremacy in the tech sector would continue to loom over markets while other trade risks would be fully reflected in asset prices. Additionally, European political risks in the medium term would also play an important role against a weak growth backdrop.
At the same time, BlackRock believed that even though country-specific risks may ebb in the emerging world, China easing policy would actually stabilise the economy.
BlackRock also said it would prefer stocks over bonds in the coming months, however with a “tempered conviction”. In equities, the quality would be found in cash flow, sustainable growth and clean balance sheets, it said.
As far as geographies were concerned, the US was forecast as a place to be while emerging market (EM) equities would offer improved compensation for risk.
When it came to fixed income, BlackRock upgraded US government debt as ballast against any late-cycle for risk and said it preferred short-to medium-term maturities, and was turning more positive on duration.
On the other hand, European stocks were described as the asset that investors might want to steer away from as they offered limited upside but hefty downside risk, the firm said.
“We expect the Federal Reserve’s policy to become more data-dependent as it nears a neutral stance, making the possibility of a pause in rate hikes a key source of uncertainty,” BlackRock said in its “Global Investment Outlook”.
“Rising risks call for carefully balancing risk and reward: exposures to government debt as a portfolio buffer, twinned with high-conviction allocations to assets that offer attractive risk/return prospects.