Higher inflation, China and the journey to net zero are the main investment themes that will shape markets in the second half of the year, Blackrock Investment Institute has said.
It its mid-year outlook, the Blackrock Investment Institute set out its top three investment themes that will dominate the landscape for the rest of 2021.
Topping the list is higher inflation, which the team expects to remain for the medium term due to a “more muted monetary response”.
“We see any bond yield rises driven by inflation, rather than policy hikes, making the unique environment that we have called the new nominal constructive for equities,” the report said. “We are moderately pro-risk and look for opportunities from any turbulence to increase risk: negative real, or inflation- adjusted, bond yields should support equities. We see potential for cyclical shares and regions to benefit from a broadening restart.”
Positive on Europe
Blackrock has also turned positive on European equities and has upgraded Japanese equities to ‘neutral’ but remains underweight on developed market government bonds.
According to the report, Chinese assets are playing a key role in Blackrock’s strategic view and, as a result, has broken them out from the wider emerging market grouping.
“Beijing’s focus on quality growth should bear fruit, keeping us tactically neutral on Chinese equities but heavily overweight strategically,” the report said.
Journey to net zero
Finally, Blackrock identified the ‘journey to net zero’ as a distinct investment theme that will dominate the landscape for the rest of the year.
It said that while there is no clear roadmap for reaching net zero carbon emissions, there will be opportunities for investors.
It said: “Some of the coming changes may be abrupt – and add to supply and demand disruptions among commodities. We see opportunities along the way, with private market financing playing a key role.”