In the middle of the dichotomy of pausing or maintaining interest rates, BlackRock believes that central banks still have a ways to go. The world’s largest asset manager stands out from most of the analysis houses and believes that financing costs will continue to rise, at least in the euro area. This is what the head of the firm for Iberia, Javier García-Díaz, considers, who anticipates that the reference rate in the eurozone can climb to 4.75% as a result of inflation “that is not yet controlled”.
If confirmed, this means that the Frankfurt-based agency must execute three additional increases of 25 basis points each – the most likely scenario – or one of 50 and another of 25 points from the 4% to which it increased last June. On the other side of the Atlantic, they also expect the Federal Reserve to resume increases after last month’s brake until reaching 5.75% compared to the 5-5.25% range.
The objective, according to Díaz, is to take rates to sufficiently restrictive terrain until they enter a recession, which possibly “will be more acute” in the single currency area than in the United States. The difference with 2008 is that “central banks are not going to come to the rescue because they themselves have generated this problem.” “This situation will put pressure on risky assets, but it will present good opportunities in other parts of the market,” he remarked during the presentation of BlackRock’s semi-annual strategy.
The expert advises in this new environment to review the 60/40 portfolio (60% equities and 40% bonds), because “it will no longer work.” “You have to be more creative and start incorporating assets from private markets” such as venture capital or infrastructure investment. In this regard, private banking clients are expected to grow considerably in this category of assets, as well as institutional investors.
The underlying issue regarding this problem lies in the inability of central banks to control prices, especially the underlying rate -which excludes energy prices and fresh food-. At the end of June, Europe registers general inflation of 5.5% while core inflation is 5.4% and in the United States, which will be published this Wednesday, the market is confident that it has relaxed from 4% to 3 ,1%.
In this sense, Díaz cites several factors that they call “macro forces”, which are what prevent the CPI from registering growth below 2%. It is about the increase in artificial intelligence, deglobalization and the return to relocation in the production of certain products, especially of a technological nature, the energy transition or the aging of the population, among others.
All this is going to give rise to a “new regime” in which the period of constant growth and low inflation is left behind, which forces us to be more tactical and selective in order to pivot towards “new opportunities”. Díaz comments that BlackRock is slightly underweight stock markets in developed economies, while overweighting equities in emerging regions such as China, where, although the reopening has run out of steam, “its CPI levels are so low that it still has room to act “.
In the same way, they also prioritize quality companies with healthy balances and sustainable cash flows, while betting on fixed income in emerging debt in local currency, issues in short tranches in the United States, while remaining neutral in Europe.
