BlackRock: Overweight US stocks and Eurozone government bonds, underweight emerging market local currency bonds

According to the Zhitong Finance APP, recently, BlackRock's think tank released a weekly report stating that, given the robust U.S. macroeconomic environment and the booming development in the field of artificial intelligence, BlackRock maintains an overweight view on U.S. stocks. BlackRock has upgraded its view on Eurozone government bonds, downgraded its view on UK government bonds to neutral, and holds an underweight view on emerging market local currency bonds. Although escalating trade tensions may continue to exert pressure in the coming months, U.S. stocks have performed strongly this year. Despite the continuous news regarding tariffs and the possibility of imposing a 10% comprehensive tariff, as long as U.S. economic growth remains resilient and inflation is controlled, the U.S. stock market is expected to continue its upward trend. The resilience of the economy, robust corporate earnings, potential regulatory easing, and investment themes in the AI sector all contribute to BlackRock's optimistic outlook.

Entering 2025, BlackRock expects unexpected events to occur, and changes in policy will increase market volatility. So far, this has indeed been the case. U.S. long-term bond yields have surged due to market concerns about fiscal issues, and then fell due to worries about economic growth and the U.S. Treasury's commitment to lowering yields. Significant breakthroughs in artificial intelligence by the Chinese startup DeepSeek, as well as news regarding U.S. tariff policies, have also intensified market volatility. BlackRock believes that tariffs will become a core tool of U.S. policy: a 10% tariff may be the new baseline for revenue generation, while a 25% tariff is more likely to serve as a negotiation tool, which is expected to trigger market volatility. As shown in the figure below, if a 10% general tariff is imposed on Canada and Mexico, combined with a 25% targeted tariff, the actual tariffs in the U.S. will approach levels seen in the 1930s. The impact of tariffs on the economy depends on the level, scope, duration of the tariffs, and any retaliatory measures. BlackRock expects increased inflationary risks and slowing economic growth, which will prompt the Federal Reserve not to cut interest rates in the short term.

Relevant data shows that the Q4 2024 earnings reports have validated BlackRock's expectations for an expanding trend in earnings growth, with earnings for the S&P 500 index, excluding the "Seven Tech Giants," growing by about 5% compared to a year ago, and the market expects a 10% growth this year. In terms of tactical allocation, BlackRock continues to overweight U.S. stocks but is also closely monitoring factors that may prompt a change in its outlook, such as slowing corporate earnings growth. BlackRock will continue to underweight U.S. long-term bonds, as despite the U.S. Treasury's commitment to lowering long-term bond yields, the massive fiscal deficit and persistent inflation are prompting investors to demand more risk compensation for holding bonds, leading BlackRock to expect long-term bond yields to rise again.

The risks associated with tariff policies have strengthened BlackRock's preference for Eurozone government bonds, leading BlackRock to hold an overweight view on them tactically. Trump has indicated that tariffs may be imposed on Europe. BlackRock believes that Europe is heavily reliant on the U.S. as an export market, which means that the risks of tariffs and any retaliatory measures could harm Eurozone economic growth more than they would elevate inflation BlackRock will downgrade its outlook on UK government bonds to neutral, having previously expected the central bank's rate cuts to exceed market expectations. Recent volatility, particularly the resurgence of fiscal concerns, has pushed bond yields to a 17-year high, after which yields fell as BlackRock anticipated, providing a good exit opportunity. Currently, the market is gradually approaching BlackRock's expectations for the Bank of England's rate cuts. BlackRock believes that concerns about the UK's fiscal outlook will persist.

BlackRock believes that emerging markets are particularly vulnerable to tariff shocks and deteriorating global risk sentiment, therefore BlackRock is underweighting emerging market local currency bonds. Mexico, which is significantly affected by tariff policies, is a key component of the emerging market local currency bond index. BlackRock tends to express heightened risk through fixed income assets, thus holding an underweight view on emerging market local currency bonds. The uncertainty surrounding tariff policies may also trigger volatility in the currency markets and impair investment returns on emerging market local currency bonds