BlackRock bets on emerging markets due to “risk appetite”

“We like emerging markets because risk appetite continues to maintain an optimistic trend.” As the US economy grows at a stronger rate than expected, inflation relaxes and the Federal Reserve (Fed) is preparing to cut interest rates, the firm anticipates “greater stimulus in emerging markets, given the market’s optimism towards assets.” risky”.

In this sense, they believe that robust US economic activity has attenuated the investor concerns about a recession, which translates to “a boon for emerging markets.”

“As markets priced in the Fed’s sharp rate cuts, 10-year Treasury yields fell from their highs near 5%. This helped reduce the Gap Between Treasury Bond Yields and emerging market hard currency debt yields,” they say.

Therefore, they remain ‘overweight’ in hard currency emerging market debt, often issued in US dollars, and consider this to be an “attractive relative value” that is seen “protected from currency weakness as emerging market central banks cut rates.

In short, “we believe that the outlook for emerging market assets is favorable as market sentiment remains positive,” they reiterate at BlackRock.

BlackRock: which countries are they targeting

Although the manager opts for emerging markets, they consider that selection is key due to the divergent performance of the countries.

In this regard, they see that there are major structural changes that create specific opportunities through the different ‘megaforces’ that they trace in the firm.

The political fragmentation It is one of these ‘megaforces’ that comes into action as geopolitical blocs harden and economic competition increases.

Here, “connector” countries such as Mexico They increasingly act as intermediate trading partners between blocks. This will, according to BlackRock, mean that the values ​​of the Aztec country will benefit and must be taken into account by investors.

Likewise, demographic divergence, another of the manager’s ‘megaforces’, will favor many emerging companies that have younger and growing populations compared to the aging societies of Europe or the US.

“That’s one of the reasons why it stands out India. Where also its ecosystem of new companies and its software companies with a global presence make it a promising center for artificial intelligence,” the experts emphasize.

And digital disruption and artificial intelligence is another of the ‘megaforces’ that will be a key driver of corporate profits, according to BlackRock.

“These factors support the momentum of Indian stocks, even when 12-month valuations are close to their highest levels in the last 20 years. In contrast, Mexico’s are closer to the 20-year average,” they analyze.

These ‘megaforces’ favor investment areas such as infrastructurefor example, investment in emerging markets related to the transition to a low-carbon economy.

“We believe that closing the financial gap offers opportunities, but will require public sector reforms and private sector innovation,” they conclude at BlackRock.