BlackRock has increased its conviction in US equities outperforming their global peers going into 2025.
“In aggregate, we still think this is a favourable environment for risk taking,” Ben Powell, chief middle east & Apac investment strategist said at a recent media event in Hong Kong.
“We’ve increased our overweight to US equities, as we think the AI mega force combined with some deregulatory excitement, can continue to drive US equities from here.”
As US equities look set to deliver another strong year of returns, BlackRock joins the ranks of investment firms calling for the asset class to continue to outperform.
Powell is cautious however, on long-term US treasuries, which are widely used for the global risk-free rate and the anchor of global asset pricing.
“In a world of higher uncertainty and higher inflation, there is a risk to longer term treasury bills,” he said. “We’ve been right to worry about inflation. Our view is that inflation won’t decline as quickly as we were hoping.”
“That’s played out and likely to be potentially exacerbated by policies from the US administration around tariffs which should be inflationary.”
“We still think treasury yields can drift a bit higher over time, so we are tactically and strategically underweight the asset class.”
Despite the uncertainty around US government bonds, Navin Saigal, head of fundamental fixed income, Asia Pacific, is optimistic on medium-term duration bond portfolios.
“There is a generational opportunity to buy into a 6% to 7% yielding globally and sector diversified fixed income portfolio with a volatility of about half that,” he said.
“In the past, to get to these kinds of yields, you used to have to go out the yield curve or down the credit quality spectrum. But today, neither of those are necessary.”
Asian assets
Narrowing down to Asian fixed income, the region’s high yield bonds were a standout performer this year as investors started to get more comfortable with the makeup of the market after the impact of China’s property woes.
Despite this recent run, Saigal is optimistic that Asian fixed income, particularly high yield, can continue with another strong year.
“There is still a decent gap between Asian high yield and US high yield that we think investors will look to as global yields compress,” he said.
“We are in a global easing cycle. Yields are compressing. Those are generating returns for investors, but to keep hitting a 7% yield, it is taking a little bit more effort.”
When it comes to Asian equities, Matt Colvin, a portfolio manager for global emerging market equities, is bullish on the impact of the AI buildout on companies in Asia.
“Silicon is eating the world,” he said. “More spending on silicon is benefiting the Asian technology supply chain.”
He pointed to the increasing price of silicon wafers, which is directly benefitting Asian firms such as Taiwan Semiconductor Manufacturing Company (TSMC), which recently increased its prices for the critical component.
“This price has started to move up significantly,” he said. “We’ve come from $1500 in 2020, to $3000 per wafer going into next year.”
“The reason for that is because the computer power that’s generated by these chips is significantly higher than it was before, and the iterations are getting faster, and this is benefiting Asian suppliers massively.”
He added: “If you’re positive on US tech, you’re by nature positive on Taiwan tech.”
Indeed, the MSCI Taiwan Index is made up almost 80% of technology firms, with more than half of the entire index made up of TSMC, due to its $755bn market capitalisation.
As investments into silicon continues, Colvin suggested there is even more room for the Asian supply chain to benefit if spending shifts more to so-called ‘edge AI’ – where the technology is on personal devices such as laptops, smartphones or cars instead of servers.
