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BlackRock turns positive on European equities amid ‘powerful restart’ from the pandemic

MarketWatch logo MarketWatch 7/7/2021 Christine Idzelis
© Jack Taylor/Getty Images
THE TELL

BlackRock has taken a shine to European stocks in the broadening economic recovery as the world continues to battle Covid-19 pandemic with the rollout of vaccines.  

The world’s largest asset manager has upgraded European equities to “overweight” while shifting away from the more bullish stance it had toward U.S. stocks, Wei Li, global chief investment strategist at BlackRock Investment Institute, said Wednesday during the firm’s virtual media briefing on its midyear outlook for markets.

Under its tactical views for the next 6 to 12 months, BlackRock has cut U.S. equities to “neutral,” upgraded Japanese stocks to “neutral” and turned positive on European equities to overweight them along with inflation-linked bonds, according to the firm’s global outlook report.

“The very powerful restart is broadening out,”  Li said during the briefing. Europe and Japan are “catching up” with the U.S., which has seen “peak growth acceleration,” she said. 

BlackRock views the strong and rapid rebound from the pandemic as a “restart” as it is unlike a typical recovery that could play out over many years, said Jean Boivin, who heads the firm’s investment institute, during the briefing. While BlackRock sees inflation rising for the next few years, he said the asset manager is expecting “a much more muted policy response” from central banks, particularly the Federal Reserve, to “lean against” it compared to recent decades.

“That’s going to boil down” to an environment in which “real rates will be low and negative for some time,” said Boivin. “That’s going to be constructive for risk assets.”

The U.S. stock market has risen to a series of new peaks this year, with the technology-laden Nasdaq Composite edging to an all-time high on Tuesday. The Nasdaq was down slightly in early afternoon trading Wednesday, while the Dow Jones Industrial Average and S&P 500 were advancing.

“The path for the U.S. equity market to continue pushing higher has become narrower,” said Li.

See: U.S. stocks are no longer top pick as investors ‘take a step back,’ Citigroup survey finds

European stocks rose Wednesday, with the Stoxx Europe 600 index closing 0.8% higher for a 15.2% return this year, according to FactSet data. Japan’s Nikkei 225 index meanwhile, fell 1%, bringing this year’s gains to 3.4%.

Both stock benchmarks are trailing year-to-date gains for the S&P 500 index, which has climbed 15.9% in 2021 based on Wednesday afternoon trading. 

“We believe U.S. growth should be back above its pre Covid-19 trend by the end of the year,” BlackRock said in its midyear outlook report. 

Read: U.S. job openings hit record 9.2 million, but businesses can’t find enough workers to fill them

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