(Bloomberg) -- A BlackRock Inc. research arm recommends cutting credit exposure and adding to developed-market stocks as Russia's invasion of Ukraine pushes inflation higher while reducing the risk of central banks jacking up rates too quickly to contain inflation.
Credit valuations have held up relatively well as bond yields have risen, but yields are still heading higher, and there's now more potential upside in equities than in bonds, including most corporate debt, strategists led by Wei Li wrote in a note Monday. The BlackRock Investment Institute moved to a tactical underweight position in credit, from being neutral before, while boosting a tactical overweight position in U.S. and European equities.
Central banks will face less political pressure to tamp down on inflation as the conflict becomes “an easy culprit” for higher prices, the strategists wrote. The policymakers will be able to raise rates more cautiously, strategists added.
“Markets will start to realize that central banks have little choice but to live with inflation,” the strategists wrote. “Market expectations of rate hikes have become excessive and have created opportunities in equities.”
Meanwhile, BlackRock is staying underweight government bonds, both tactically and strategically, as it expects long-dated yields to “resume their march higher” amid rising inflation and larger debt loads. The BlackRock Investment Institute's tactical recommendations cover the next six to 12 months.
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