Blackrock's biggest risks in the second quarter for investors

 
Jessica Morris
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The risk of China devaluing its yuan currency could return longer-term (Source: Getty)

The world's largest asset manager has flagged the biggest risks investors must watch out for in the second quarter of this year.

Blackrock's quarterly global investment outlook, written by its global chief investment strategist, Richard Turnill, and his team, highlights some of the hurdles which could rile global markets.

Chinese yuan devaluation

They warn global markets could go into tailspin if the world's second largest economy devalues its yuan currency, amid its rapidly depleting foreign reserves.

It said that this could spark a wave of competitive devaluations by other countries, suggesting policymakres had lost control and hitting risk assets around the world.

China shocked markets after weakening the value of its yuan currency in August, sparking "Black Monday" that wiped around $1.6 trillion from global blue-chips in just one day.

Blackrock believes there's a low probability of this happening right now, however the risk could return in the longer-term due to imbalances in China's economy.

Britain leaving the EU

Blackrock also flagged Britain's potential exit from the European Union after the 23 June referendum as a sore spot.

Blackrock has previously said a Brexit would hit sterling, potentially sparking a wave of credit downgrades, spikes in gilt yields - increasing government borrowing and hurting domestically-focused UK equities and jeopardising London's property market.

Chaotic US presidential campaign

Another political development which poses a potential hurdle for investors is the US presidential campaign.

Presidential candidates have been locked in blazing rows the economy, foreign policy and the Middle east. Republican candidates Ted Cruz and Donald Trump have even had a row over the size of the latter's privates.

Given the ensuing drama, it's hardly surprising more time hasn't been found for less headline-grabbing issues such as deficit reduction.

"Thus far in the current campaign, the candidates have taken passionate positions on topics ranging from income inequality to immigration. Entitlement reform and deficit reduction have been absent from that list," Blackrock as previously said.

Other hurdles

Further disintegration in the Middle East and another leg down in oil prices were also flagged.

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