Hot Money Monday: Ready for your next asset allocation? Here’s where BlackRock thinks you should invest

BlackRock’s latest insights highlight key opportunities for Aussie investors, focusing on global stocks and emerging trends.

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• BlackRock bullish on US stocks and AI growth

• China shows potential but faces long-term challenges

• Japan and UK equities attract BlackRock's attention

BlackRock has just released a report on the state of the markets, focusing on global stocks and some exciting opportunities for Aussie investors.

The big picture

First, US stocks are still pulling in a lot of interest, especially from Aussie investors, as they continue to see strong inflows into ETFs.

BlackRock is bullish on US equities, saying that it’s a great time to get involved. The S&P 500 recently hit an all-time high, which is driving this positive sentiment.

“We keep our US equity overweight on the artificial intelligence (AI) theme broadening,” says BlackRock.

But it’s important to stay selective there, adds the world's biggest asset manager.

While the US market remains appealing due to the rise of AI across various sectors, it’s crucial to keep an eye on potential selloffs driven by high valuations.

Elsewhere, China is showing how quickly cheap stock valuations can turn into a rally. After a recent politburo meeting, hopes for big fiscal stimulus sent Chinese shares soaring. However, the lack of specific details has left some investors wanting more clarity.

Despite the recent rally, China’s stock valuations are still low, says BlackRock, but there are long-term challenges to keep in mind, such as competition with the West and an ageing population.

Japan is also on BlackRock’s radar, as the country’s stocks are benefitting from strong corporate earnings and ongoing reforms.

“We have stayed overweight Japan stocks on a sunnier macro backdrop and corporate reforms driving strong earnings and shareholder returns,” BlackRock added.

In Europe, with 11 per cetn gains this year, European stocks have lagged major markets. But certain sectors, like banks, are performing well. BlackRock still sees potential there, despite a softer economy in the UK.

“We go overweight UK gilts (bonds) as we see the Bank of England having to cut policy rates more than markets are pricing given the soft economy,” the fund manager wrote.

“Bottom line: We stay nimble to seize high-conviction global opportunities."

Five mega forces

BlackRock defines mega forces as big, structural changes that affect investing now – and far in the future.

These shifts can lead to big changes in profits for different sectors and economies. For investors, this means there are significant opportunities, but also risks to consider.

Here are the five mega forces in the world right now, according to BlackRock:

1. Demographic divergence: The world is split between ageing advanced economies and younger emerging markets – with different implications.

2. Digital disruption and artificial intelligence (AI): Technologies are transforming how we live and work.

3. Geopolitical fragmentation and economic competition: Globalisation is being rewired as the world splits into competing blocs.

4. Future of finance: A fast-evolving financial architecture is changing how households and companies use cash, borrow, transact and seek returns.

5. Transition to a low-carbon economy: The transition is set to spur a massive capital reallocation as energy systems are rewired.

Country views

Here are BlackRock’s insights on various countries and regions, and their respective markets, highlighting where potential investment opportunities may arise.

UNITED STATES

“We are overweight given our positive view on the AI theme," the report said. "Valuations for AI beneficiaries are supported as tech companies keep beating high earnings expectations.

“We think upbeat sentiment can broaden out. Falling inflation is easing pressure on corporate profit margins.”

CHINA

“We are modestly overweight," says BlackRock.

“Major fiscal stimulus may be coming and prompt investors to step in given Chinese stocks are at a deep discount to developed market shares.

“Yet we stay ready to pivot. We are cautious long term given China’s structural challenges.”

EUROPE

“We are underweight relative to the US, Japan and the UK – our preferred markets.

“Valuations are fair. A growth pickup and European Central Bank rate cuts support a modest earnings recovery. Yet political uncertainty could keep investors cautious.”

BlackRock's big calls

AI AND US EQUITIES

“We see the AI buildout and adoption creating opportunities across sectors.

“We get selective, moving toward beneficiaries outside the tech sector. Broad-based earnings growth and a quality tilt make us overweight US stocks overall.

JAPANESE EQUITIES

“A brighter outlook for Japan’s economy and corporate reforms are driving improved earnings and shareholder returns.

“Yet the drag on earnings from a stronger yen and some mixed policy signals from the Bank of Japan are risks.”

FIXED INCOME

“The income cushion bonds provide has increased across the board in a higher rate environment.

“We like quality income in short-term credit. We’re neutral long-term US Treasuries.”

PRIVATE CREDIT

“We think private credit is going to earn lending share as banks retreat – and at attractive returns relative to public credit risk.”

EMERGING MARKETS

“We favour emerging markets (EM) over developed markets yet get selective in both.

“EMs at the cross current of mega forces – like India and Saudi Arabia – offer opportunities.

"In developed markets, we like Japan as the return of inflation and corporate reforms brighten our outlook.”

The views, information, or opinions expressed in this article are solely those of BlackRock and do not represent the views of Stockhead. Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.

Originally published as Hot Money Monday: Ready for your next asset allocation? Here’s where BlackRock thinks you should invest