BlackRock finds bright spots in global stocks, says this on US, India

BlackRock Investment Institute (BII) in its latest weekly note said US and Japanese equities are its big tactical calls with high conviction over the next 6-12 months. BII said it is 'neutral' on emerging markets as the growth and earnings outlook are mixed, and as it finds valuations for India and Taiwan a bit high.

On China BlackRock said it is modestly overweight, as AI and tech excitement could keep driving returns,  potentially reducing the odds of much-anticipated government stimulus. "We stand ready to  pivot. We remain cautious given structural challenges to China’s growth and tariff risks," it said. 

As far as strategic calls are concerned, BlackRock said it favours emerging over developed markets yet get selective in both. "EMs at the cross current of mega forces – like India and Saudi Arabia – offer opportunities. In DM, we like Japan as the  return of inflation and corporate reforms brighten the outlook," it said.

On tactic calls, it likes US stocks even as it believes policy uncertainty may weigh on growth and stocks in the near term. It remained overweight on US equities as it sees the AI buildout and adoption creating opportunities across sectors and driving equity  strength over its tactical horizon. 

"We tap into beneficiaries outside the tech sector. We see  valuations for big tech backed by strong earnings, and less lofty valuations for other sectors," BII said.

BlackRock noted that the weight of non-US equities in global equity indices has been on the rise since  the end of January. In the near term, policy uncertainty has shaken investor conviction in US growth and equity strength, it said.

"The selloff has been exacerbated by  investors rapidly pulling out of popular trades – like the tech-heavy momentum  equity style factor and cyclical trades that were betting on a boost from growth from  potential U.S. deregulation and tax cuts. Meanwhile, country-specific developments are boosting the appeal of global stocks," it said.

That said, BlackRock believes US stocks can ultimately keep leading as the artificial intelligence (AI) theme  broadens. 

On Japanese stock market, BlackRock said it sees a brighter outlook for Japan’s economy and corporate reforms are driving improved earnings and shareholder returns. Yet the potential drag on earnings from a stronger yen is a risk, it said.

"The US equity pullback has put a dent in US. outperformance over the rest of the  world. We stay overweight US stocks and see opportunities across global stocks. Europe’s fiscal boost may benefit some sectors. In Asia, corporate reforms have lifted Japanese stocks, while some Latin American countries tap into mega forces. 
Stronger currencies may boost the appeal of emerging local currency debt. Yet we think prolonged US policy uncertainty could dim some of these bright spots," BlackRock said.