BlackRock’s Gargi Pal Chaudhuri foresees an imminent economic downturn and a downturn in equity markets.
However, Chaudhuri also believes that stock markets will not reach their 2022 lows and that any slump should be mild.
She also identified five areas investors should invest in now to achieve above-average returns later.
Gargi Pal Chaudhuri has both good and bad news for investors looking to recover from the volatility that has characterized markets so far this year and invest now.
Chaudhuri, who oversees investment strategy for BlackRock’s iShares Americas division, which currently has over $2.2 trillion in assets under management, believes inflation will remain high – meaning the US Federal Reserve will raise interest rates probably won’t lower this year. “Inflation is likely to be a lot more persistent, especially in segments like services and housing,” she said in a recent interview with Business Insider.
On the other hand, the US economy has already shown signs of strength this year and Chaudhuri believes that an economic slowdown, if it materializes, would be both relatively mild and predictable.
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“I think we can quickly emerge from the recession and focus on sales for 2024 and beyond. I’m not saying there will be a prolonged downturn,” she explained. “We’re likely to see a slight pullback, but I don’t think we’re going to get back to last year’s lows.”
Investing now is worthwhile for these five market segments
Markets are also beginning to come to terms with the possibility of prolonged high interest rates and have adjusted their prices accordingly. While this repricing in the bond market has uncovered more opportunities in that asset class, Chaudhuri has yet to see the same type of price adjustments in the broader stock market.
“We think investors should instead focus on bonds, where yields are now significantly higher,” she said. For the bond market, Chaudhuri recommends a barbell strategy for investors looking to invest now both ends of the yield curve to participate.
“Structurally, we’ve talked about owning the front end of bonds because the maturity risk that investors take is very low, as well as the shape of the yield curve and the amount of carries or coupons to earn there,” she explained .
While an inverted yield curve makes shorter-dated bonds more attractive, Chaudhuri said maintaining some volume in longer-dated bonds could help investors augment their yields.
As for the stock market, Chaudhuri said that from a historical perspective The Value Share generally outperform in a macroeconomic environment characterized by higher inflation and higher interest rates. Despite having significantly outperformed over the past year, she believes value stocks would continue to outperform as interest rates remain high for at least the next six months.
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Within the value category, Chaudhuri named the Infrastructure sector and high-dividend stocks as two specific areas that could be worth investing in now because they could outperform in the current macroeconomic environment. She also believes that better valuations, a weaker dollar and the reopening of the Chinese economy will give investors better opportunities to invest in overseas stocks, particularly the Chinese emerging marketscould find.
“The emerging markets have completed their interest rate hike process much faster and are therefore able to cope with weaker growth a little better,” Chaudhuri continued.
Disclaimer: Stocks, cryptocurrencies and investments are always associated with risk. A total loss of the invested capital cannot be ruled out either. The published articles, data and forecasts are not an invitation to buy or sell securities or rights. They also do not replace professional advice.
This text was translated from English by Jannik Rade. You read the original here.
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