Some 120 BlackRock portfolio managers and executives discussed what is in store for markets next year at our 2015 Outlook Forum in mid-November in London. The semi-annual event, the seventh of its kind, was marked by intense investment debates in small and large groups. One exercise featured a pre-mortem: “It’s mid-2015 and one of your investments has blown up. Which one, and how could you have hedged it?”
We pushed ourselves to re-examine these lower-conviction positions, many of them pro-growth or relying on price momentum. We debated our high-conviction investments in another—less morbid—session and have sprinkled them throughout this publication. The reason for introspection: The financial market cycle has moved ahead of the economic one in many countries, partly as a result of QE. A torrent of monetary stimulus did not just suppress volatility, but pulled forward financial activity as well. Valuations in most markets are rich and investor faith in monetary policy underpinning asset prices is high.
We reminded ourselves that periods of high returns are usually followed by low ones; the trick is picking the turning points. Bursts of market volatility from the current low levels are likely—and have the potential to wrong-foot investors (page 8). Easy hedges are tougher as stock and bond prices may start moving in the same direction. Also, yields are so low that bonds risk losing their role as shock absorbers
Growth scares and tumbling resources prices have led to sharp falls in inflation expectations. The worry for central bankers: Even medium-term inflation expectations (which discount swings in energy prices) are falling fast, particularly in the eurozone. This suggests central banks alone cannot prevent disinflation. Increased public spending may be needed to reflate economies—but many governments are unwilling (or unable) to loosen their purse strings. The global recovery from the 2008 financial crisis has been an unusually tepid one.
Nominal growth in 2015 is expected to be below the 15-year trend in most economies, according to International Monetary Fund (IMF) forecasts, with the U.S. and Japan notable exceptions. Many pro-growth assumptions—rising wages and inflation, a behind-the-curve Fed and an uptick in global growth—did not pan out in 2014. GDP forecasts have a history of downward revisions. See the chart to the left. The oil price decline, if sustained, could reverse this trend in 2015 as it should boost real growth in major economies. The price fall should dampen headline inflation in the developed world. This could strengthen calls for monetary stimulus in weak economies and help keep a lid on bond yields in stronger ones. Lower energy prices benefit many EM nations due to improved trade balances, reduced government subsidies and lower inflation. India, Indonesia and Thailand should be winners, we believe. Oil exporter Nigeria could be a casualty.
Divergence in the emerging world is becoming more evident due to tightening U.S. monetary policy and falling commodities prices. (We should start calling them diverging markets.) Satellites of the eurozone and Asia will likely import dovish monetary policies from the ECB and BoJ, respectively. They will have room to cut rates to spur growth. Commodities producers such as Russia and Brazil might have to hike rates to defend their currencies. Yet still others, such as Mexico and China, stand to gain from U.S. economic momentum.
These diverse countries have one thing in common: Traditional export models are challenged. The reasons are weak global demand from the developed world and a deceleration in the emerging world’s engine, China. Export growth has been essentially flat for the past three years. See the chart below. Weak EM currencies and equity prices have offset the lack of export growth to some extent. Yet countries could do more to unlock their potential: improve infrastructure, institutions and education, and enact reforms to make their economies more competitive.
REFORMING MARKETS A little reform can go a long way—especially if starting expectations are low. China’s leaders are (gently) tapping the growth brakes as they attempt their biggest reform since the 1980s: Cutting the economy’s dependence on investment and raising the share of consumption. There are plenty of subtleties along the way: } China’s recent interest rate cut was the latest in a series of targeted easing measures to loosen financial conditions and provide a stable growth foundation for structural reforms. Rate cuts often have come in a series, accompanied by fiscal stimulus. We could see this scenario play out again. } We see economic growth and demand for resources slowing, but not falling off a cliff. Remember growth is coming off an increasingly large base. Also, high growth is not necessarily good for markets. China’s economy powered ahead in the new millennium, yet equities underperformed as structural problems such as over-investment increased. }
The trading link between the Shanghai and Hong Kong stock exchanges over time should boost investor confidence in China’s domestic markets and increase their index weighting. Falling property prices, a string of scandals surrounding asset-backed securities schemes and cheap valuations make equities look (relatively) attractive to domestic investors. India is riding a wave of optimism after pro-business Narendra Modi won the elections. Indian debt looks like good value with inflation falling. Robust earnings growth supports (pretty heady) equity valuations, but visible progress on reforms is needed for markets to advance further.
Mexico is well along on the reform path, including freeing up the key energy sector. Benefits take years to become evident, and reforms often stoke a backlash in the short term. The reform magic is at work in Indonesia as well, with the election of hands-on Joko Widodo. The country has cut fuel subsidies (as has India), but further reforms will be a hard slog—Widodo does not have a parliamentary majority. Long-suffering holders of South Korea’s stocks are pinning their hopes on reform measures that incentivize companies to raise dividends. A more immediate catalyst could be further easing by the Bank of Korea.
Yang perlu diketahui tentang Blackrock
BlackRock, Inc. is a multinational investment management corporation based in New York City. Founded in 1988, initially as a risk management and fixed income institutional asset manager, BlackRock is the world’s largest asset manager with over $4.77 trillion in assets under management. At the end of 2014, 65 percent of Blackrock’s assets under management were from institutional investors. BlackRock is independently managed, with no single majority stockholder; stock is owned by institutional and individual investors, including BlackRock employees
In 2000, BlackRock launched BlackRock Solutions, the risk management division of BlackRock, Inc. The division grew from the Aladdin System (which is the enterprise investment system), Green Package (which is the Risk Reporting Service) PAG (portfolio analytics) and AnSer (which is the interactive analytics). BlackRock Solutions (BRS) serves two roles within BlackRock. First, BlackRock Solutions is the in-house investment analytics and “process engineering” department for BlackRock which works with their portfolio management teams, risk and quantitative analysis, business operations and every other part of the firm that touches the investment process. Second, BlackRock Solutions (BRS) and the three primary divisions (which include risk management investment platform solutions, FMA, and client solutions) are services that offered to institutional clients. As of 2013, the platform had nearly 2,000 employees.
The major differential between BlackRock and every other asset manager is that risk management is not separate. Risk management is the foundation and cornerstone of the firm’s entire platform. Aladdin keeps track of 30,000 investment portfolios, including BlackRock’s own along with those of competitors, banks, pension funds, and insurers. According to The Economist, the platform monitors almost 7 percent of the world’s $225 trillion of financial assets.
BlackRock Solutions was retained by the U. S. Treasury Department in May 2009 to manage the toxic mortgage assets (i.e. to analyze, unwind, and price) that were owned by Bear Stearns, AIG, Inc., Freddie Mac, Morgan Stanley, and other financial firms that were affected in the 2008 financial crisis.