Around the world in 80 seconds

Karim Chedid
Karim Chedid, CAIA
EMEA ETF Investment & Product Strategy

Unless otherwise stated all data is sourced from BlackRock as at 05 October. All amounts given in USD.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

  • Welcome back! This week we published our Q4 Implementation Guide, with views across index and alpha.

    In September, volatility struck again as investors digested hawkish sentiment from the Fed [US Federal Reserve] and the BoE [Bank of England], and inflationary pressures did continue building, as seen by the supply crunches and fuel shortages in a number of countries. While these developments influence short-term market moves, we do think it’s important to zoom out and concentrate on the longer-term market drivers. In our new Guide, we dive into three themes: the new nominal, China stands out, and journey to net zero.

    Theme 1: as the powerful activity restart continues, we see regions such as Europe well-positioned. At the same time, we expect central banks to remain broadly accommodative, even with the rising inflationary pressures. So, we remain overweight on European equities, and we see the region as positioned to benefit from the broadening restart. The outlook for European earnings also has been improving significantly, even ahead of its US counterpart. Foreign investors have been dominating European equity buying in 2021, especially US investors, who have bought nearly US$16B in European equity ETPs vs. only US$10B from home investors.

    Theme 2: first, Chinese equities. Volatility has been high in this space, but we are seeing authorities moving towards more macro loosening policies and the regulatory tightening and scrutiny that had been so central in the first part of the year is starting to peak. So, we turn to a modest overweight as a result. 

    Japan: here, we stick with our neutral, and sentiment on Japanese equities has been boosted in anticipation of further fiscal spend from who is likely to be the next prime minister, Kishida-San, who just won the LDP [Liberal Democratic Party] election this week. Here again foreign investors have been stepping in, especially European investors. They bought more than US$5B this year in Japanese equities, and the demand in this space has been more organic in 2021: so, BoJ [Bank of Japan] buying, which formed nearly the total of inflows in 2020 into equity ETFs in Japan, is now only 30% of total inflows. 

    We’ve also upgraded our view on local currency EM [emerging market] debt to overweight, and we do see the exposure offering an attractive source of income in the current still very low yield environment, and we see EM FX showing potential to strengthen from here. So, both exposures – EM local and Chinese equities – remain light in positioning, so there’s room for flows to pick up here. 

    Theme 3: of course, last but not least, sustainable exposures have been a key theme in 2021. Here, inflows have been added at a record pace – so nearly US$100B into sustainable exposures across global ETPs YTD, which already surpasses the full 2020 record. Nowhere is it clearer that investors are replacing core exposures in their portfolios with sustainable equivalents than in European equities, where 73% of YTD inflows were into the sustainable equivalent.

    Thank you for watching and do check out our Guide below this video.

This material 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 financial instrument or product or to adopt any investment strategy.