Tags: BlackRock | risk | assets | deflation

BlackRock: Get Ready to Drop Risky Assets

By    |   Wednesday, 11 December 2013 07:37 AM

Be prepared to flee overheated markets next year, investment management firm BlackRock warns in a new report.

Although risky assets like stocks and corporate bonds have room to run, keep a close eye on growing imbalances, BlackRock Investment Institute advises in its 2014 Investment Outlook.

"Are we there yet? We do not think so. Irrational exuberance can last a long time. But much policy powder has already been spent, and we will be on bubble watch. 2014 is the year to squeeze out more juice from markets — and be ready to discard the fruit when it starts running dry," BlackRock strategists write.

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"Low for longer," featuring slow growth and loose financial conditions, is the most likely scenario for next year, it says. In that scenario inflation will remain low and stable, stocks prices will probably continue rising, and the hunt for yield will intensify.

"We are living in a low-growth world that is slowly returning to normalcy — if we are lucky."

BlackRock foresees U.S. GDP growth of about 2.5 percent. Anemic growth in the eurozone won't be enough to reduce debt loads, and China will continue its growth at a slower pace.

"The good news: Developed economies should accelerate in tandem for the first time since 2010."

However, there's a chance things could go very wrong, the report cautions. Squeezed incomes, large debt burdens, or austerity could prompt deflation, and central bank tightening could spark a market sell off, hurting corporate revenues and profits and leading to another recession.

The Federal Reserve's exit from its quantitative easing, the report says, "is not going to be a walk in the park, as some policymakers would like to think. We see it more as a triathlon in twilight."

BlackRock recommends alternative investments such as market-neutral funds and hard assets like infrastructure. "Rising correlations between bonds and stocks are making well-diversified, 'safe' portfolios riskier than they appear. Diversification is like insurance: You do not need it — until you need it."

Other experts see the bull market in stocks continueing.

"We don’t see a bear market coming," Henry Smith, chief investment officer of Haverford Trust, tells Kiplinger's Personal Finance. "We believe that March 2009 represented a generational low, and that this is the middle of a sustained bull market."

Investors can reasonably expect returns of 8 to 12 percent, including dividends, in 2014, putting the Dow Jones Industrial Average at about 17,300 to 17,600, according to Kiplinger's.

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Be prepared to flee overheated markets next year, investment management firm BlackRock warns in a new report.
BlackRock,risk,assets,deflation
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2013-37-11
Wednesday, 11 December 2013 07:37 AM
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