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Pessimism about the global economy abounds.
Citi last week cut its global economic view, S&P Global Ratings said faltering growth is adding risks to global credit conditions and the World Trade Organization on Tuesday cut its trade outlook.
The Institute for Supply Management reported its worst manufacturing reading in a decade in September.
BlackRock, the giant fund manager, is a little more optimistic. In a new commentary, BlackRock’s Investment Institute points out that financial conditions have eased as central banks, including the Federal Reserve and European Central Bank, have cut interest rates.
The orange line shows the rate of GDP growth implied by its financial conditions indicator, based on its historical relationship with its growth GPS, shifted forward 180 days.
That’s going to have an effect, and BlackRock says it’s already starting to see signs of its impact, as the U.S. housing market appears to have turned a corner, auto sales have held up and machinery investment has rebounded in Europe. BlackRock says it expects a pickup in global economic growth in the next six to 12 months.
BlackRock isn’t entirely bullish — they point out the German economy is still struggling and increasingly protectionist trade policies are a key driver of global markets and the economy. On the U.S.-China trade war, “we see some possibility of a truce, but a comprehensive trade deal as unlikely.”
So the fund manager recommends “moderate risk-taking.” It prefers U.S. equities for reasonable valuations and relatively high quality, and it prefers emerging market debt for its coupon income. It’s overweight euro-area sovereign bonds because of their relatively steeper yield curve, and it sees government bonds as important portfolio stabilizers.
The S&P 500 SPX, -0.91% has climbed 19% this year, and the iShares JPMorgan USD emerging market bond exchange traded fund EMB, -0.25% has gained 8%.