Beleggingscategorie
Thema's
Onderzoek en inzichten
Beleggingsinformatie
Market take
Weekly video_20240311
Jessica Thye
Opening frame: What’s driving markets? Market take
Camera frame
The transition to a low-carbon economy is a mega force or structural shift we track that is shaping investment returns.
Title slide: Low-carbon transition themes in 2024
We see potentially market-moving developments in three key areas this year.
1: Battery prices
First, battery prices make up a significant portion of the production cost of some clean technologies and have slid sharply over the past decade. We think falling prices could give a boost to electric and hybrid vehicles, and energy storage for power grids this year.
2: Global elections
Second, global elections, including in the European Union, US and India, come at a time of increasing geopolitical fragmentation. This year’s many elections could have trade and policy implications for the evolution and adoption of clean technology, and the path of the low-carbon transition.
3: Climate resilience
Third, further extreme weather events could spur interest in a new investment theme: climate resilience, or society’s ability to adapt to climate risks. We believe financial markets may underappreciate the prospects for companies that create and adopt products and services that boost climate resilience.
Outro: Here’s our Market take
As we weigh transition-related investment opportunities and risks, much will depend on the direction of global transition policy following key elections. As physical climate risks mount, we think climate resilience could come to the fore as an investment theme.
Closing frame: Read details:
www.blackrock.com/weekly-commentary
We monitor battery prices, elections and market attention on climate resilience for their impact on transition-related investment opportunities and risks.
US stocks were mostly flat last week, while 10-year US Treasury yields fell further. Markets still expect the first Federal Reserve rate cut around mid-2024.
We’re watching February US CPI data out this week to see how much further inflation will fall in the near term. We still expect inflation to resurge in 2025.
The low-carbon transition is a mega force we track that is shaping investment returns now. We see potentially market-moving developments in three key areas this year. First, falling battery prices could boost demand for energy storage systems for power grids, and electric and hybrid vehicles. Second, elections around the globe could affect future energy and industrial policy. And third, rising physical damages could spur interest in a new investment theme: climate resilience.
Lithium-ion battery costs, past and projected, 2015-2040
Source: BlackRock Investment Institute, with data from BloombergNEF and INET, March 2024. Notes: The chart shows past and projected costs per kilowatt-hour for the volume-weighted average lithium-ion battery cell. This includes data from passenger cars, buses, commercial vehicles and stationary storage.
Battery prices make up a third or more of the production cost of some clean technologies, such as energy storage systems for power grids, electric and hybrid vehicles (EVs). They have slid sharply over the past decade. See the chart. The 2022 uptick looks to have been a blip, with battery producers signaling potentially sharp price cuts this year – largely due to an 80% price drop in lithium, a key input, after a surge in supply. Intense competition and rapid technological progress are helping reduce prices, too. Some companies are using artificial intelligence – another mega force – to discover new battery materials that could lower future costs. We’re watching whether a further fall in battery prices will feed through to final purchase prices and boost demand for energy storage, EVs and hybrid autos – especially as their running costs are lower than for traditional internal combustion vehicles.
This year’s many elections, including in the European Union, US and India, come at a time of increasing geopolitical fragmentation and as governments seek to balance decarbonization, energy security and energy affordability objectives – which can be complementary or competing. The election results could have implications for how that balance is struck – and consequently for the evolution and adoption of clean technology, and the path of the low-carbon transition more broadly.
Several governments are subsidizing their energy and clean tech industries, with non-subsidized competitors facing pricing and margin pressure. Countries could levy trade restrictions on imported tech to shield local industries. US and EU investigations into the Chinese EV industry could have this outcome. We could also see changes to transition-related policy after the elections – potentially accelerating the transition in some places and slowing it in others. In India, the election could result in policy continuity, paving the way for quicker decarbonization and bolstering the country’s efforts to become a bigger clean technology production hub. The US election result could have implications for the Inflation Reduction Act – a 2022 law that has spurred major investment in, and demand for, energy infrastructure and technology. Changes could range from repeal or delays to complementary policy that increases its effectiveness, like land permitting reform.
A third focus: whether 2023’s title as the hottest year on record – as recorded by the World Meteorological Organization – and further extreme weather events this year will spark greater investor interest in climate resilience, or society’s ability to prepare for and withstand climate risks. Think early monitoring systems for floods, air conditioning to cope with heatwaves or retrofitting buildings to better withstand extreme weather. We think markets may underappreciate the prospects for firms creating and adopting resilience-boosting products and services – and see this becoming a more recognized opportunity.
We think falling battery prices could boost the EV and energy storage industries this year. Much depends on the direction of global transition policy after key elections as we weigh transition-related investment opportunities and risks. As physical climate risks mount, we believe climate resilience could come to the fore as an investment theme.
The S&P 500 was mostly flat on the week after pushing to new highs. US 10-year Treasury yields edged lower and were about 20 basis points off their 2024 high after remarks by Fed Chair Jerome Powell did little to change expectations for a first rate cut around midyear. US jobs data showed a strong if moderating labor market. Wage growth also moderated but remains at levels not consistent with inflation staying at the Fed’s 2% target. We still see inflation on a rollercoaster.
We’re watching the release of the US CPI data for February this week to gauge how much further inflation will fall in the near term after January showed stubborn inflation. Rapidly falling goods prices look set to drive inflation down near the Fed’s 2% policy target this year. Yet once goods prices stabilise, we see inflation on a rollercoaster ride back up in 2025 as wage growth remains elevated and keeps services inflation higher than before the pandemic.
Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from LSEG Datastream as of March 7, 2024. Notes: The two ends of the bars show the lowest and highest returns at any point year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in US dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE US Dollar Index (DXY), spot gold, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (US, Germany and Italy), Bank of America Merrill Lynch Global High Yield Index, J.P. Morgan EMBI Index, Bank of America Merrill Lynch Global Broad Corporate Index and MSCI USA Index.
US CPI; UK jobs data
UK GDP
University of Michigan consumer sentiment survey
China total social financing
Read our past weekly commentaries here.
Our highest conviction views on tactical (6-12 month) and strategic (long-term) horizons, March 2024
Reasons | ||
---|---|---|
Tactical | ||
US equities | Our macro view has us neutral at the benchmark level. But the AI theme and its potential to generate alpha – or above-benchmark returns – push us to be overweight overall. | |
Income in fixed income | The income cushion bonds provide has increased across the board in a higher rate environment. We like short-term bonds and are now neutral long-term US Treasuries as we see two-way risks ahead. | |
Geographic granularity | We favor getting granular by geography and like Japan equities in DM. Within EM, we like India and Mexico as beneficiaries of mega forces even as relative valuations appear rich. | |
Strategic | ||
Private credit | We think private credit is going to earn lending share as banks retreat – and at attractive returns relative to credit risk. | |
Inflation-linked bonds | We see inflation staying closer to 3% in the new regime on a strategic horizon. | |
Short- and medium-term bonds | We overall prefer short-term bonds over the long term. That’s due to more uncertain and volatile inflation, heightened bond market volatility and weaker investor demand. |
Note: Views are from a US dollar perspective, March 2024. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any particular funds, strategy or security.
Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, March 2024.
Our approach is to first determine asset allocations based on our macro outlook – and what’s in the price. The table below reflects this. It leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns. The new regime is not conducive to static exposures to broad asset classes, in our view, but it is creating more space for alpha. For example, the alpha opportunity in highly efficient DM equities markets historically has been low. That’s no longer the case, we think, thanks to greater volatility, macro uncertainty and dispersion of returns. The new regime puts a premium on insights and skill, in our view.
Asset | Tactical view | Commentary | ||||
---|---|---|---|---|---|---|
Equities | ||||||
United States | Benchmark | We are neutral in our largest portfolio allocation. Falling inflation and coming Fed rate cuts can underpin the rally’s momentum. We are ready to pivot once the market narrative shifts. | ||||
Overall | We are overweight overall when incorporating our US-centric positive view on artificial intelligence (AI). We think AI beneficiaries can still gain while earnings growth looks robust. | |||||
Europe | We are underweight. The ECB is holding policy tight in a slowdown. Valuations are attractive, but we don’t see a catalyst for improving sentiment. | |||||
U.K. | We are neutral. We find attractive valuations better reflect the weak growth outlook and the Bank of England’s sharp rate hikes to fight sticky inflation. | |||||
Japan | We are overweight. We see stronger growth helping earnings top expectations. Stock buybacks and other shareholder-friendly actions are positives. Potential policy tightening is a near-term risk. | |||||
Emerging markets | We are neutral. We see growth on a weaker trajectory and see only limited policy stimulus from China. We prefer EM debt over equity. | |||||
China | We are neutral. Modest policy stimulus may help stabilize activity, and valuations have come down. Structural challenges such as an aging population and geopolitical risks persist. | |||||
Fixed income | ||||||
Short US Treasuries | We are overweight. We prefer short-term government bonds for income as interest rates stay higher for longer. | |||||
Long US Treasuries | We are neutral. The yield surge driven by expected policy rates has likely peaked. We now see about equal odds that long-term yields swing in either direction. | |||||
US inflation-linked bonds | We are neutral. We see higher medium-term inflation, but cooling inflation and growth may matter more near term. | |||||
Euro area inflation-linked bonds | We are underweight. We prefer the US over the euro area. We see markets overestimating how persistent inflation in the euro area will be relative to the US. | |||||
Euro area government bonds | We are neutral. Market pricing reflects policy rates in line with our expectations and 10-year yields are off their highs. Widening peripheral bond spreads remain a risk. | |||||
UK Gilts | We are neutral. Gilt yields have compressed relative to US Treasuries. Markets are pricing in Bank of England policy rates closer to our expectations. | |||||
Japan government bonds | We are underweight. We see upside risks to yields from the Bank of Japan winding down its ultra-loose policy. | |||||
China government bonds | We are neutral. Bonds are supported by looser policy. Yet we find yields more attractive in short-term DM paper. | |||||
US agency MBS | We are neutral. We see agency MBS as a high-quality exposure in a diversified bond allocation and prefer it to IG. | |||||
Global investment grade credit | We are underweight. Tight spreads don’t compensate for the expected hit to corporate balance sheets from rate hikes, in our view. We prefer Europe over the US. | |||||
Global high yield | We are neutral. Spreads are tight, but we like its high total yield and potential near-term rallies. We prefer Europe. | |||||
Asia credit | We are neutral. We don’t find valuations compelling enough to turn more positive. | |||||
Emerging market - hard currency | We are overweight. We prefer EM hard currency debt due to its relative value and quality. It is also cushioned from weakening local currencies as EM central banks cut policy rates. | |||||
Emerging market - local currency | We are neutral. Yields have fallen closer to US Treasury yields. Central bank rate cuts could hurt EM currencies, dragging on potential returns. |
Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a US dollar perspective, March 2024. 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.
Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, March 2024.
Asset | Tactical view | Commentary | ||
---|---|---|---|---|
Equities | ||||
Europe ex UK | We are underweight. We see the European Central Bank holding policy tight in a slowdown and the support to growth from lower energy prices is fading. | |||
Germany | We are underweight. Valuations are moderately supportive relative to peers, but we see earnings under pressure from higher interest rates, slower global growth and medium-term uncertainty on energy supply. Longer term, we think the low-carbon transition may bring opportunities. | |||
France | We are underweight. Relatively richer valuations and a potential drag to earnings from weaker consumption amid higher interest rates offset the positive impact from past productivity enhancing reforms and favorable energy mix. | |||
Italy | We are underweight. The economy’s relatively weak credit fundamentals amid global tightening financial conditions keep us cautious even though valuations and earnings revision trends look attractive versus peers. | |||
Spain | We are underweight. Valuations and earnings momentum are supportive relative to peers, but the uncertain outcome of Spanish elections is a temporary headwind. | |||
Netherlands | We are underweight. The Dutch stock markets' tilt to technology and semiconductors, a key beneficiary of higher demand for AI, is offset by relatively less favorable valuations and earnings momentum than European peers. | |||
Switzerland | We are overweight. We hold a relative preference. The index’s high weights to defensive sectors like health care and non-discretionary consumer goods provide a cushion amid heightened global macro uncertainty. Valuations remain high versus peers and a strong currency is a drag on export competitiveness. | |||
UK | We are neutral. We find that attractive valuations better reflect the weak growth outlook and the Bank of England’s sharp rate hikes to deal with sticky inflation. | |||
Fixed income | ||||
Euro area government bonds | We are neutral. Market pricing reflects policy rates in line with our expectations and 10-year yields are off their highs. Widening peripheral bond spreads remain a risk. | |||
German bunds | We are neutral. Market pricing sets a high bar for dovish ECB surprises and 10-year yields are off their highs. | |||
French OATs | We are neutral. Valuations look moderately compelling compared to peripheral bonds, with French spreads to German bonds hovering above historical averages. Elevated French public debt and a slower pace of structural reforms remain headwinds. | |||
Italian BTPs | We are neutral. The spread over German Bunds looks tight amid sluggish global macro, the ECB holding policy tight and Italian fiscal policy back in the limelight / fiscal targets under pressure. Other domestic factors remain supportive, namely a more balanced current account. For now, we see income helping to compensate for the slightly wider spreads we expect. | |||
UK gilts | We are neutral. Gilt yields have compressed relative to US Treasuries. Markets are pricing in Bank of England policy rates closer to our expectations. | |||
Swiss government bonds | We are neutral as the Swiss National Bank approaches peak policy rates amid relatively subdued inflation in international comparison and a strong currency. Further upward pressure on yields appears limited given global macro uncertainty. | |||
European inflation-linked bonds | We prefer the US over the euro area. We see markets overestimating how persistent inflation in the euro area will be relative to the US. | |||
European investment grade credit | We are neutral European investment-grade credit. We maintain our preference for European investment grade over the US given more attractive valuations amid decent income. | |||
European high yield | We are overweight. We find the income potential attractive. We still prefer European high yield given its more appealing valuations, higher quality and lower duration than in the US Spreads compensate for risks of a potential pick-up in defaults, in our view. |
Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a euro perspective, March 2024. 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.
Beleggen gaat altijd gepaard met een zekere mate van risico. In het verleden behaalde resultaten bieden geen garantie voor de toekomst. De waarde van uw beleggingen kan sterk schommelen als een gevolg van het beleggingsbeleid en het is niet zeker dat u uw oorspronkelijke inleg terug ontvangt. De waarde van de beleggingen die blootgesteld zijn aan vreemde valuta kan worden beïnvloed door valutaschommelingen.
Bronnen: Bloomberg, tenzij anders aangegeven
DIT MATERIAAL IS BEDOELD VOOR VERSPREIDING ONDER PROFESSIONELE CLIËNTEN EN ER MAG NIET OP WORDEN VERTROUWD DOOR ANDERE PERSONEN.
De hier geuite visies en meningen vormen geen beleggingsadvies of andersoortige aanbeveling en kunnen aan verandering onderhevig zijn. Ze weerspiegelen niet altijd de gezichtspunten van een bepaalde onderneming binnen de BlackRock Group of van een afdeling daarvan en de juistheid ervan kan niet worden verzekerd.
Uitgegeven in de EER door BlackRock (Netherlands) B.V.: Amstelplein 1, 1096 HA, Amsterdam, Tel.: 020 - 549 5200, Handelsregister nr. 17068311. Raadpleeg de website voor meer informatie: www.blackrock.com. Voor uw bescherming worden telefoongesprekken gewoonlijk opgenomen. BlackRock is een handelsnaam van BlackRock (Netherlands) B.V.