Proactive Investors - BlackRock (NYSE:BLK) has jumped on the recent artificial intelligence (AI) bandwagon, describing the technology as a “mega force” shaping the macro regime and investment opportunities in a new research report.
“We implement an overweight to AI as a mega force,” the asset management firm said in its 2023 midyear outlook report published on Wednesday.
“New AI tools could analyze and unlock the value of the data gold mine some companies may be sitting on.”
The firm also highlighted semiconductor makers and businesses that have high automation potential as those set to benefit from AI.
As investors seek out AI opportunities, “S&P 500 gains have become increasingly concentrated in a handful of tech stocks, surpassing levels seen in the 2000s tech boom,” the firm noted.
“We think this unusual equity market shows a mega force like AI can be a big driver of returns even when the macro environment is not your friend.”
In addition to the theme of “harnessing mega forces,” BlackRock highlighted two other main updated investment themes in its report, the first being “holding tight” as markets have come to the view that central banks will not quickly ease policy amid supply constraints, notably worker shortages in the United States.
“We see central banks being forced to keep policy tight to lean against inflationary pressures,” the firm said.
“This is not a friendly backdrop for broad asset class returns, marking a break from the four decades of steady growth and inflation known as the Great Moderation.”
The firm’s other investment theme is “pivoting to new opportunities.”
'“Greater volatility has brought more divergent security performance relative to the broader market,” it said.
“Benefiting from this requires getting more granular and eyeing opportunities on horizons shorter than our tactical one. We go granular by tilting portfolios to areas where we think our macro view is priced in.”
Further, BlackRock noted that developed market (DM) equities remain the biggest building blocks by far in its portfolios, especially US stocks.
It also favors Japanese equities with DM stocks, and said they prefer emerging market (EM) equities and local EM bonds. For income, the firm said it preferred short-dated US Treasuries, US mortgage-backed securities, and high-grade credit.
Looking ahead five years or more, it pointed to private credit as an area that could gain from the pressure on traditional banks and tighter credit conditions.