This isn’t 2008: BlackRock calls for investors to ‘stay calm and stay invested’

‘Stay calm’ says BlackRock, as the promise of a big dose of US stimulus puts the brakes on tumbling global markets.

BlackRock Investment Institute APAC said investors should be “level headed, keep a long-term perspective and stay invested”. Picture: AFP

The world’s biggest fund manager has called for calm after the coronavirus outbreak and oil price plunge triggered financial market movements “reminiscent of the global financial crisis” and the promise of a substantial US stimulus package.

BlackRock Investment Institute APAC said investors should be “level headed, keep a long-term perspective and stay invested”, after global sharemarkets suffered their biggest falls since the financial crisis as oil prices collapsed on the breakdown of supply talks.

His advice came after Australia’s S&P/ASX 200 share index fell 7.3 per cent and the US S&P 500 dropped 7.6 per cent as crude oil prices plunged by around 30 per cent after Saudi Arabia signalled a price war.

“The scale of financial market moves in response to the coronavirus outbreak has been reminiscent of the global financial crisis and has been compounded by the biggest fall in oil prices in three decade,” BlackRock said.

But “we do not think this is 2008”, adding, “the economy is on more solid footing and, importantly, the financial system is much more robust than it was going into the crisis of 2008.”

BlackRock is the world’s biggest fund manager with $US7.43 trillion ($11.15 trillion) of assets under management. The fund manager is also the world’s biggest manager of passive funds with its iShares business managing about $2.24 trillion exchange traded funds.

“We don’t see this as an expansion-ending event - provided that a pre-emptive and coordinated policy response is delivered and we see encouraging signs that this policy response is starting to come together,” BlackRock said.

“It will need to be a joint and decisive effort between fiscal and monetary policy…the key vulnerabilities that need to be addressed: cash challenges faced by companies, especially small- and medium-sized enterprises, and households.”

The comments came as global sharemarkets rebounded strongly in Asian trading on Tuesday after US President Donald Trump flagged an imminent announcement of additional fiscal stimulus.

S&P 500 futures rose more than 2.5 per cent in Asia after Mr Trump said he will unveil “very dramatic” actions to support the economy on Tuesday afternoon US time.

“I will be here tomorrow afternoon to let you know about some of the economic steps, which will be major,” Trump said at a White House press conference late Monday.

He also flagged a payroll tax cut and “very substantial relief” for virus-affected industries.

The US announcement came after Australian Prime Minister Scott Morrison set out principles for a stimulus package, the details of which are due to be released later this week.

Australian business confidence sank to a 6.5-year low of minus 4 points in February, while business conditions hit a 5.5-year low of zero, according to NAB’s monthly business survey, released on Tuesday.

The global benchmark US Treasury bond yield jumped 15 basis points to an intraday high of 0.69 per cent in Asian trading. Its yield hit a record low near 0.31 per cent amid panic buying on Monday.

The BlackRock Investment Institute changed its moderately pro-risk stance to neutral two weeks ago as the coronavirus outbreak began spreading across the globe.

BlackRock said aggressive public health measures to prevent the virus from spreading were likely to result in a “sharp and deep economic slowdown in the near term”.

While the collapse in oil prices should ultimately benefit global growth, it “also risks at least temporary financial and economic dislocations in energy-heavy sectors, such as emerging market commodity exporters and parts of US high yield”, he added.

But while the ultimate depth and duration of the coronavirus’ economic impact was “highly uncertain”, BlackRock said “the shock should be temporary as the outbreak will eventually dissipate and economic activity will normalise – assuming the needed policy response is delivered.”

The firm recommended investors stay at benchmark weights for equities, and overweight the more defensive quality and minimum-volatility style factors.

“We favour portfolio resilience, including cash and sustainable investing strategies, and still prefer US Treasuries over lower-yielding peers for portfolio ballast,” BlackRock said.

“We recognise Treasury allocations are playing their role during moments of high uncertainty, but see risks of a diminishing buffer against equity market sell-offs and a snap-back in yields from historically low levels.”