In an environment of expensive valuations, absolute bargains are hard to come by. Russ Koesterich discusses why investors should focus on relative value and offers three areas where investors can find it.

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    Well, this is the big challenge right now. Nothing is cheap. And what I've come to say recently is that reasonable is the new cheap. In other words, you're not going to find an absolute bargain, but you do find some relative bargains. In that context, there are a couple of places we do think investors should be looking.

    One, emerging markets, specifically in Asia. These are generally reasonable. We're seeing improving economic conditions; we're seeing some positive catalysts from recent elections, and also investor sentiment starting to turn. Second, Japanese equities.

    Third, closer to home, we see better bargains in large cap cyclical companies in the United States, which appear not only cheaper than smaller-cap and more defensive companies, but also should be the biggest beneficiaries as we continue to see some improvement in the U.S. economy.

Investing involves risk, including possible loss of principal.

International investing involves special risks including, but not limited to, currency fluctuations, illiquidity and volatility. These risks may be heightened for investments in emerging markets. Investments in emerging markets may be considered speculative and are more likely to experience hyperinflation and currency devaluations, which adversely affect returns. In addition, many emerging securities markets have lower trading volumes and less liquidity. The opinions presented are those of Russ Koesterich, BlackRock's Chief Investment Strategist, as of August 12, 2014 and may change as subsequent conditions vary. Individual portfolio managers for BlackRock may have opinions and/or made investment decisions that may, in certain respects, not be consistent with the information contained in this presentation. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this presentation are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. Past performance does not guarantee future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the viewer.

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