The world’s biggest asset manager BlackRock said today the era of steady growth and inflation was over as it revealed it had slashed its exposure to developed market equities and was bracing for extended period of volatility.
In its mid-year outlook statement today, the investor said it was now bracing for a “persistent inflation amid sharp and short swings in economic activity” after a fundamental reshaping of the global macroeconomic environment.
“The Great Moderation, a period of steady growth and inflation, is over, in our view,” BlackRock Vice Chairman Philipp Hildebrand and his team said.
“Instead, we are braving a new world of heightened macro volatility – and higher risk premia for both bonds and equities.”
BlackRock said it was now underweight U.S., European and UK equities given its worsening economic outlook, while holding onto neutral position in Japanese, Chinese and emerging market stocks.
Investors should no longer expect both equities and fixed income to rally in tandem as has been the case over the last 20 years, BlackRock strategists said.
The firm added that central banks are rushing to raise rates to contain inflation that is “rooted in production constraints”, stemming from a massive shift in spending and labour shortages.
Hyper-politicisation, they argue, is also leading to a proliferation of simplified arguments and “poorer policy solutions” to the argument.
“We think we will be living with inflation,” BlackRock said. “For all the noise about containing inflation, we see policymakers ultimately living with some of it.”