Why Blackrock prefers to buy Risk Assets

Courtesy : Moneycontrol

The best way to invest right now is to buy risk assets like equities, says Robert Doll, the Vice Chairman and Global CIO – Equities of investment management firm BlackRock.

“Forget the short term. We are in a sweet spot for risk assets. We’ve passed the bottom of the recession and are in a recovery, though it’s slow,” Doll told business network CNBC. “That's the sceptical phase when people just don't believe it. All the policy stimulus, all the cash on the sidelines [are present in the system] and so risk assets — equities, the credit side of fixed income — are likely to outperform cash and treasuries.”

Equity markets around the world saw a freefall starting January 2008 as the financial crisis engulfed the world, crashing by as much as 40% and 70% in various countries — India’s BSE Sensex fell from 21,000 to 8,000 in 15 months time. Since March though, markets have seen a substantial rally worldwide with the Indian market doubling from its low.

“This is a tactical call that says risk assets, equities included, should do better,” Doll said, adding, “We're about to start the third-quarter earnings reports. Our guess is that it's going to be good news.”

Doll added that earnings of companies are expected to improve not just on cost cutting but also because of an increase in revenues.

Doll said that, from a geographic standpoint, BlackRock prefers to buy in emerging markets (EMs) [like India and China] as compared to developed markets.

“Emerging markets tend not to have quality but I might turn around and say thatEMs have higher quality of growth, absence of the stranglehold of debt, strong savings rate and a middle class that's growing rather rapidly — that growth is attractive in a world where it's hard to find.”

Even as capital markets around the world were yet to reach their 2007 highs, Doll said that the direction in terms of policy and response to the crisis was what mattered, “and we would guess it's in an upward trend.”