We believe the synchronized global economic expansion has plenty of room to run in 2018 and beyond—more than many investors think. We like equities and see emerging markets (EM) at an earlier stage of expansion, boding well for EM assets.
The BlackRock Growth GPS (the green line in the chart below) shows that growth among G7 countries is cruising at above-trend rates. Yet consensus expectations have largely caught up with our GPS. That catch-up helped drive risk asset gains this year but now suggests less room for upside surprises to play such a role. Sustained growth amid low market volatility should underpin risk assets—especially if many investors, fearing a near-term downturn, start to embrace the upbeat outlook.
We believe the broad global expansion is not as long in the tooth as many assume. See our 2018 Global Investment Outlook for more. Emerging markets are at an earlier stage of expansion and reinforcing the growth backdrop, benefiting from better trade activity and firmer commodity prices. We expect the EM world to weather any mild slowdown in China. The U.S. may soon receive a decent dose of fiscal stimulus from tax cuts. European economies are posting solid growth but have plenty of lingering spare capacity that could take years longer to absorb. The Federal Reserve is normalizing policy at a gradual pace, while other major central banks are still nurturing recoveries with stimulus.
Our conviction on the expansion’s durability, coupled with still subdued inflation and low interest rates, argues in favor of risk assets. And yet 2017 will be a tough act to follow. We believe returns in many asset classes will be more muted, even as structurally lower interest rates mean equity multiples can stay higher than in the past. We believe equities offer greater upside than credit as the cycle matures. And we see more earnings upgrades next year, though a higher base of comparison will make it harder to top expectations.
We prefer equities outside the U.S., where fuller valuations are less of a drag. We are positive on EM equities due to increasing profitability and relatively attractive valuations. In developed markets, we like tech and financials—with the latter poised to benefit from U.S. deregulation. We also see this environment as positive for the momentum style factor, albeit with potential for sharp reversals. Bottom line: We see the economic expansion—and the outperformance of risk assets—having more room to run. Read more market insights in my Weekly Commentary.
Build on Insight, by BlackRock written by Richard Turnill
Investing involves risks, including possible loss of principal.
In Latin America and Iberia, for institutional investors and financial intermediaries only (not for public distribution). This material is for educational purposes only and does not constitute investment advice or an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund or security and it is your responsibility to inform yourself of, and to observe, all applicable laws and regulations of your relevant jurisdiction. If any funds are mentioned or inferred in this material, such funds have not been registered with the securities regulators of Brazil, Chile, Colombia, Mexico, Panama, Peru, Portugal, Spain Uruguay or any other securities regulator in any Latin American or Iberian country and thus, may not be publicly offered in any such countries. The securities regulators of any country within Latin America or Iberia have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America or Iberia. The contents of this material are strictly confidential and must not be passed to any third party.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of December 2017 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader.
©2017 BlackRock, Inc. All rights reserved. BLACKROCK is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States or elsewhere. All other marks are the property of their respective owners.
321549