BlackRock presented its investment scenarios for the coming months to the media in Mexico, in the context of what it described as “volatile markets that nevertheless offer great opportunities for financial asset managers.”
“We believe that risks can be taken in the markets at this time; although we have high interest rates, which could justify a common investor maintaining their investments in fixed income, with levels that, for example, in Mexico reach 11% annually and in the United States 5% when two years ago they were at 0%, we consider that if we do not see the broader context that dominates the markets today, we miss out on investments that can be very good, for example, the performance of the S&P500 has yielded an accumulated benefit of 18% this year, not to mention that in 2023 it delivered more than 20%,” said José Luis Ortega, Director of Active Investments at BlackRock Mexico and a member of the fund’s investment committees in the region.
“These interest rate levels that we see both in Mexico and in other parts of the world can sometimes lead us to see ‘mirages’ and miss out on equally or more profitable investments, passing up opportunities to maximize benefits for investors,” said Sergio Méndez, General Director of BlackRock Mexico, who was also present at the media meeting.
There Is No Tech Bubble, We Favor U.S. Equities
“Is there a bubble?” managers and investors ask themselves in light of the stock market’s performance on Wall Street, specifically in the technology sector, which reported a 22.56% gain for the year as of Friday’s close. The BlackRock specialist responds.
“One of the stocks that have led this growth is Nvidia’s. Two years ago, it was below $20; by 2023, it had already recorded a 100% gain, trading above $40, and many people thought we were in a bubble with that performance, but it is currently trading at $130. And if we look at Nvidia’s valuation today with projected future earnings, it is not more expensive than it was two years ago,” explained the head of investments at BlackRock Mexico.
“The amount of profits that this chip company linked to artificial intelligence is generating justifies those valuations, which is why we do not believe there is a tech bubble. We consider the valuations to be justified and believe that the good performance of the technology sector can continue, which is why when we apply it to portfolios, we particularly like having exposure to equities, especially in the United States, due to this technological theme that we believe will continue to be important going forward,” said José Luis Ortega.
The BlackRock executive compared the 2001 versus the current scenarios in Wall Street’s technology sector; he recalled that in 2001, the dot-com collapse was caused by a bubble inflated solely by expectations, with valuations of companies that had nothing concrete. Today is different; the technology industry now does valuations based on recorded profits, making prices more solid.
“We maintain a positive view on taking risks, favoring equities at this time, particularly those in the United States, although we also like other regions like Japan and the United Kingdom, as we believe their valuations are very attractive in both markets. In Japan’s case, we have a central bank with a monetary policy that, while likely to normalize, will not become restrictive, providing significant support to the Japanese stock market,” said the BlackRock executive.
In the debt segment, the investment manager warns that they will continue to seek to capitalize on the short-term income generated, as it is undeniable that 11% in Mexico and 5% in the United States versus 0% a few years ago is very attractive. It is impossible to pass up the opportunity to have investments generating such levels of return with virtually no risk.
However, the fund’s director of investments in Mexico reiterated their desire to capitalize on the equity opportunity they foresee, especially in the United States, as this will allow for more attractive returns for their portfolios in the time horizon.
Be Agile
Despite the current central scenario being linked to risk-taking due to the optimism they perceive in the equity markets, especially in the technology sector, BlackRock also warned that they must remain agile, constantly reviewing the structure of their investment portfolios to make the best investment decisions in changing scenarios.
For example, the great revolution of artificial intelligence will likely be a deflationary factor for the world in the long term, but while all those investments and technological developments are being realized, significant inflationary forces are very likely in the short and medium term.
Therefore, it is important for investment managers to remain agile to capitalize on opportunities that may arise while simultaneously protecting portfolios from inherent risks. Today, it is not possible to stick with a fixed portfolio or investment.
For Funds Society, Madrid
