LONDON -BlackRock Inc trimmed its exposure to European government bonds and said it favoured equities over fixed income in the year ahead as inflation will settle above pre-pandemic levels.
The world's biggest asset manager said it had turned "underweight" European government bonds, predicting yields would head higher while current market pricing pointed to no substantive change in monetary policy for several years.
"We see inflation settling above pre-Covid trends – we’re going to be living with inflation," said Philipp Hildebrand, vice chairman of BlackRock in a note to clients published on Monday.
"We favor equities over fixed income as a result, but have dialed back our risk-taking given the wide range of potential outcomes in 2022."
BlackRock Global Chief Investment Strategist Wei Li said another up year for equities is expected in 2022, while bonds would have another down year, adding it was rare to have two consecutive years with that happening.
Only modest gains are forecast for stocks in the coming year due to "decelerating growth, central banks starting to normalize, a likely peak in profit growth, and potential earnings disappointments," the outlook said.
On the bond front, BlackRock said it continues to be "firmly underweight" U.S. Treasuries.
Climate change was also part of the inflation story, said BlackRock in its 2022 outlook note, and would likely deliver a series of supply shocks playing out over decades.
Meanwhile the backdrop for China assets looked brighter in the near-term, according to Yu Song, chief China economist at BlackRock.
"We expect stricter regulation in China to persist but think it’s unlikely to intensify in the politically significant year of 2022 given slowing growth," he added.
