2020 Global Outlook: Testing limits

Asset class views

The first step in our tactical asset allocation process is to systematically identify the current macro regime and think through potential regime changes. This is important because different regimes have different implications for asset returns. Our base case has 2019’s slowdown regime extending into 2020, but we are on the watch for potential regime shifts. We could see a transition into goldilocks (a positive scenario for risk assets) or stagflation (negative for many asset classes). See the graphic below for descriptions of these and other regimes.

Macro regimes

Macro regimes

Source: BlackRock Investment Institute. Note: For illustrative purposes only.

Our conclusion on the dominant macro regime informs our tactical (six-to 12-month) views. The other key input: estimating the extent to which the current macro backdrop is priced into markets. This can help identify dislocations between fundamentals and market pricing, potentially leading to tactical opportunities.

This integrated view of macro fundamentals and market pricing is further informed by synthesizing technical indicators and inputs from BlackRock experts. It leads us to overall views on global equities, credit, government bonds and cash. We employ a similar process to arrive at more granular views within asset classes and across regions and equity style factors. We scale these views according to our level of conviction.

Our directional views show our relative preferences across broad, global asset classes and where we think they are headed over the next six to 12-months. Three overarching ideas are embedded in these views for 2020:

Modestly positive on risk assets: The expansion of valuation multiples that powered equity markets higher in 2019 — and the dovish pivot by central banks that helped offset the downdraft from rising global trade tensions — look to be behind us. Instead, we see growth ticking up and protectionist pressures going sideways. Coupled with what appear to be reasonable valuations across equities and credit, we believe this should pave the way for modest returns in global risk assets.

Neutral on global duration and cash: Developed market policy rates look to be broadly on hold for now. With growth and inflation set to inflect higher, this creates some risk of a steepening yield curve. Short maturities and TIPS are likely to provide more resilience under this base case. They can also cushion against risks that undermine growth, such as a breakdown in U.S.-China trade talks. Our modestly pro-risk stance overall argues for a near-benchmark allocation to cash.

Cautious cyclical rotation: Cyclical assets have severely underperformed in recent years, both on a regional basis (U.S. stock market returns have outrun those of more cyclical peers) and in equity style factors (value has had a near-record stretch of lagging other factors). We believe a rebound in global trade and capex should pave the way, tactically, for stronger performance of cyclical assets such as Japanese, emerging market (EM) and Canadian equities. The key risks: U.S.-China trade talks break down or China fails to deliver on even modest stimulus expectations.

Our directional views show our relative preferences across broad, global asset classes and where we think they are headed over the next six to 12-months. The bars show our level of conviction.

Directional views
Tactical views on major global assets from a U.S. dollar perspective, December 2019

Directional View


Note: This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.

Our granular views indicate how we think individual assets will perform against broad asset classes. We indicate different levels of conviction.

Granular views
Tactical views on selected assets vs. broad asset classes by level of conviction, December 2019

Granular View


Note: Views are from a U.S. dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.

Meet the authors
Philipp Hildebrand
Philipp Hildebrand
Philipp Hildebrand, Vice Chairman of BlackRock, is a member of the firm's Global Executive Committee. He is also Chairman of the Financial Markets Advisory (FMA
Jean Boivin
Jean Boivin
Head of BlackRock Investment Institute
Jean Boivin, PhD, Managing Director, is the Head of the BlackRock Investment Institute (BII). The institute leverages BlackRock’s expertise and produces proprietary ...
Elga Bartsch
Elga Bartsch
Head of Macro Research, BlackRock Investment Institute
Elga Bartsch, PhD, Managing Director, heads up economic and markets research at the Blackrock Investment Institute (BII). BII provides connectivity between BlackRock's ...
Chief Investment Strategist, BlackRock Investment Institute
Scott Thiel
Scott Thiel
Managing Director, BlackRock’s Deputy Chief Investment Officer of Fixed Income and Portfolio Manager, BlackRock Fixed Income Global Opportunities Fund
Scott Thiel, Managing Director, is BlackRock's Deputy Chief Investment Officer of Fundamental Fixed Income. He is Head of Global Bonds and has direct portfolio management ...

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