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BlackRock Investment Institute

Davos Brief

‘Globalisation 4.0’ is the theme uniting leaders at the 2019 World Economic Forum. Change is afoot in our highly interconnected world. The BlackRock Investment Institute aims to provide insights to help investors keep pace, and create portfolios resilient to shifting market, political and regulatory dynamics. We share a sample of our work here.


  • Geopolitics: We view geopolitical risk as a material market factor in 2019, particularly amid slowing growth and rising uncertainty about the economic and corporate earnings outlook. We see trade, US-China relations and European political risks dominating this year. Our barometer of overall market attention to geopolitics has edged down, enlarging the potential market impact of geopolitical shocks.
  • Economic outlook: Global growth is poised to slow as the post-crisis expansion enters its final stage. Trade activity, business sentiment and investment plans have softened. The fading US fiscal boost should be offset by heftier stimulus in China and Europe. The risk of a US recession is limited for now but climbs over time. Risks to consensus growth views tilt to the downside. We see most of the downside risk already priced in financial markets.
  • Financial markets: We identify three key market themes for 2019. The first acknowledges a slowdown in global growth, and increased uncertainty around the outlook. The second gauges the implications of a burgeoning trend toward monetary policy normalization. The third stresses the importance of building greater resilience into portfolios.
  • Innovations and trends: We have developed a new portfolio construction framework, including revamped capital market assumptions. Our 10-year downside-aware strategic asset allocation preferences favour emerging market (EM) equities along with government bonds, at the expense of credit. Lastly, we explore institutional investors’ increasing penchant for private market assets and look into a key consideration for sizing their allocations.

Ever-evolving geopolitics

We have upgraded the likelihood of three of our top 10 geopolitical risks, even as overall market attention to geopolitics has edged down recently. See the Tracking global geopolitical risks chart below. We see geopolitical risk as a material market factor in 2019, especially in an environment of slowing growth and rising uncertainty about the economic and corporate earnings outlook. It’s the risks investors are not focused on that tend to have the greatest market impact. View our BlackRock geopolitical risk dashboard for more.

Tracking global geopolitical risks
Relative likelihood and market impact of risks

Tracking global geopolitical risks


Forward-looking estimates may not come to pass. Source: BlackRock Investment Institute, January 2019. Notes: The graphic depicts BlackRock’s estimates of the relative likelihood (vertical axis) of the risks over the next six months and their potential market impact on the MSCI ACWI Index (horizontal axis). The market impact estimates are based on analysis from BlackRock’s Risk and Quantitative Analysis group. See the How it works section of our geopolitical dashboard at dashboard/ and the 2018 paper Market Driven Scenarios: An Approach for Plausible Scenario Construction for details. The chart shows our original estimate of market impact at the time the scenario was conceived. The Global dot represents our overall assessment of geopolitical risk. Its likelihood score is based on a simple average of our top 10 risks; the market impact is a weighted average by likelihood score of 10 risks. Some of the scenarios we envision do not have precedents – or only imperfect ones. The scenarios are for illustrative purposes only and do not reflect all possible outcomes as geopolitical risks are ever-evolving. Coloured lines and dots show whether BlackRock’s Geopolitical Risk Steering Committee has increased (orange), decreased (green) or left unchanged (purple) the relative likelihood of any of the risks from our previous update.

Slowing — but still growing

We see US-led global growth slowing as the recovery from the Great Recession and long expansion enters its final stage. The key drivers: elevated macro uncertainty, an intensifying US-China tech rivalry and tighter financial conditions. See the Tightening time chart. Yet we see risk of a US recession as limited in 2019, and believe financial markets have priced in most of the downside risk. Read more in our January 2019 Global macro and market perspectives.

Tightening time
G3 Growth GPS vs. growth implied by G3 FCI, 2014–2019

Tightening time


Source: BlackRock Investment Institute, with data from Bloomberg and Consensus Economics, January 2019. Notes: The BlackRock G3 Growth GPS (orange line) shows where the 12-month forward consensus GDP forecast for the US, eurozone and Japan may stand in three months’ time. The purple line shows the rate of G3 GDP growth implied by our financial conditions indicator (FCI), based on its historical relationship with our Growth GPS. The FCI inputs include policy rates, bond yields, corporate bond spreads, equity market valuations and exchange rates. The FCI is moved forward six months, as it has historically led changes in the Growth GPS. Forward-looking estimates may not come to pass.

Lowered bar gives valuations
room to rise

Cheapened valuations lower the bar for positive performance in 2019, but rising risks argue for caution. We prefer stocks over bonds, but with reduced conviction versus 2018. Equity valuations are back in line with post-crisis averages, as gauged by earnings yields. See the Yielding more chart. Yet fears over an economic slowdown, earnings downgrades and trade conflicts loom large. This underscores our preference for quality companies with strong balance sheets and sustainable free cash flows.

Yielding more
Asset yields, post-crisis vs. beginning and end of 2018

Yielding more


Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from Thomson Reuters, 14 Jan. 2019. Notes: The post-crisis average is measured from 2009 through 14 Jan. 2019. Equity market yields are represented by 12-month forward earnings yields. Indexes used from left to right: Thomson Reuters Datastream 2-year and 10-year U.S. Government Benchmark Indexes, Bloomberg Barclays U.S. Credit Index, Bloomberg Barclays U.S. High Yield Index, JP Morgan EMBI Global Diversified Index, MSCI World Index and MSCI Emerging Markets Index.

Going private

Institutional asset owners are increasingly allocating to private markets, we find. The Private appetite chart shows investors’ stated allocation intentions by asset class for 2019, as revealed in BlackRock’s 2019 Global Institutional Rebalancing survey. Yet the role private markets play in a portfolio varies based on investor-specific objectives — and the precise allocation depends on constraints. Traditional portfolio techniques tend to over-allocate to private markets based on their higher expected returns. Our revamped CMAs aim to solve this problem: Allowing for greater uncertainty in private market return expectations keeps suggested allocations in check.

Private appetite
Portfolio change preferences by asset class, 2019

Private appetite


For illustrative purposes only. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. No analysis of their suitability was conducted and no statement of opinion in relation to their suitability is provided. Source: BlackRock Investment Institute, with data from the BlackRock 2019 Global Institutional Rebalancing survey. Notes: The bars show the proportion of investors surveyed in Nov.-Dec. 2018 indicating a preference to increase, decrease or make no change to respective asset class allocations in 2019. Core refers to liquid investment grade bonds and Core Plus to sub-IG liquid credit. The sample sizes by asset are: Equities (225); Private equity (188); Core/core Plus (196); High yield (183); Private credit (160).

Philipp Hildebrand
BlackRock Vice Chairman
Tom Donilon
Chairman of the BlackRock Investment Institute