Chief Economist & CIO
Summary: The climate agenda is about to bring the largest shift in policy priorities in the modern era, and BlackRock has flagged this in its most recent annual letter to CEOs. Here we note the importance of this watershed development and consider the implications for asset markets from here.
I have spent a great deal of time recently – some might even say too much time – focusing on climate as a future driver of valuation. But a more than interesting news item broke today that lends my case some support, as the world’s largest fund manager BlackRock, with its $7 trillion in assets under management is sounding the same notes that we have on climate, to wit “BlackRock CEO says the climate crisis is about to trigger ‘a fundamental reshaping of finance’”.
The post-WWII economic environment has been driven by maximizing growth – everything else has been sub-optimized. So a shift to climate priorities is perhaps the most significant change for markets in generation and for the coming decade and beyond, this change will mean:
The implications for a trend:
Earlier this week, Saxo’s Peter Garnry produced a basket of climate stocks that are a useful starting point for an equity focus on the potentially most climate agenda-leveraged equities.
Here are some other useful links:
Original New York Times article breaking the BlackRock story
Wall Street Journal on the BlackRock shift to a climate focus
What’s the impact?
We can’t over-emphasize the degree to which this story risks altering the investment landscape as BlackRock and the other major index funds own a vast swath of global equities. Bloomberg has a great article and graphic showing the concentration of the “Big Three” index funds, the largest of which is BlackRock. Changing investor and company priorities deserve our undivided attention in 2020 and beyond, especially around the US presidential election as four more years as any non-Donald Trump victory will accelerate the change from regulation on top of the change already unfolding due to popular pressures and the writing on the wall.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
