The equity market has played an early role in sustainable investing, while bond markets have lagged in data, tools and insights. But that’s changing fast, as we detail in a new publication: Sustainability: the bond that endures. New ESG indexes have created building blocks that can be used to bring sustainability into the core of portfolios, even in asset classes such as emerging market (EM) debt that until recently lacked sustainable solutions.
Two key themes have driven financial markets in 2019: the drag on economic activity and risk assets from trade tensions (our “protectionist push” theme); and a dovish pivot by central banks that has supported the expansion (“stretching the cycle”). What lies ahead? We believe these two market drivers may be testing limits over the next year.
Global central banks have delivered an unusual late-cycle dovish pivot this year – to extend an already-long economic expansion. The Fed’s rate cut last week was the latest installment of this dovish push.
One beneficiary of a perceived easing in the U.S.-China trade conflict: EM debt, which has rallied recently and outperformed developed market peers. We see factors further supporting EM debt from here: a likely Fed rate cut this week and the potential for a stable U.S. dollar; an EM growth rebound; and a temporary U.S.-China trade truce.
Our BlackRock geopolitical risk dashboard helps track geopolitical risks and their potential market impact. It features both data-driven market attention trackers (BlackRock geopolitical risk indicators, or BGRIs) and judgment-based assessments of our top 10 risks.
Japanese equities outran their global peers in September in an exaggerated response to a temporary thaw in U.S.-China trade tensions. We maintain our underweight on Japanese equities, as they are still particularly vulnerable to a growth slowdown in China and we see no sustained letup in the protectionist push.
Earnings will be key for further U.S. equity gains. Third-quarter earnings season may offer some limited support to U.S. stocks in the near term, as the macro backdrop worsens and a growth rebound is months away.
Major central banks have eased monetary policy in recent months, delivering on the anticipated policy pivot that informs one of our key investment themes. We expect policy easing to help sustain the economic expansion, and already see easier financial conditions.
Elga explains why we see a growth pickup looming on the horizon. Hint: Watch the transmission of financial conditions.
A rebound in bond yields has led to a shakeup in equity market factor returns. U.S. value has recovered and momentum stumbled. Can this factor rotation last? We think it is too early to call for a value revival – and prefer defensive equity factors such as minimum volatility and quality as growth slows.
Markets breathed a sigh of relief last week on signs of easing U.S.-China trade tensions. We see ongoing policy support, the absence of obvious financial system vulnerabilities and resilient consumer spending helping extend the U.S. economic expansion.
We identified geopolitical risk as the key market driver in the second half of 2019 in our midyear investment outlook. The UK is the latest example, where deep divisions over a potential Brexit have unsettled the political landscape, paving the way for a broader set of potential outcomes.