(June 30): BlackRock Inc’s research arm has become cautious on emerging-market stocks and is bullish about short- and medium-term euro-area government bonds, according to its 2026 mid-year global investment outlook. 

For the former, it cites AI concentration risks. For the latter, it says that policy fears, when it comes to the outlook for interest rates, look overdone. 

The world’s largest asset manager has downgraded its view on emerging-market equities for the next six to 12 months to 'neutral' from 'overweight'. It cites risks in markets such as Taiwan and South Korea that are heavily exposed to AI-linked companies. 

“Geographic diversification does not reduce concentration risk when multiple markets are tied to the same value chain,” the report by the BlackRock Investment Institute, a division of the asset manager that focuses on investment research, said. “Such concentration risks cause us to downgrade broad emerging-market equities.”

Emerging-market stocks have suffered their steepest weekly loss since early March last week, hit by a renewed tech sell-off that battered South Korean equities and by growing expectations of a more hawkish US Federal Reserve. The MSCI Emerging Markets Index is now on track to have its worst month since March.

BlackRock remains optimistic about US stocks, where tech companies account for a large share of the market.

“We seek broad AI exposure through US tech, leading us to overweight US equities,” the report said. “Even if the ultimate winners are unclear, many are likely to be found there.”

The report reflects views from BlackRock’s senior portfolio managers and investment executives.

Within fixed income, the New York-based company has upgraded short- and medium-term euro-area government bonds to overweight from neutral, saying investors are overestimating how long monetary policy will remain restrictive.

It has kept its underweight stance on long-term US government bonds. That’s as persistent inflation, spurred in part by the massive spending on AI infrastructure, has eroded these bonds’ role as a safe haven.

Credit markets, meanwhile, have showed few signs of a systemic break, with defaults contained and recoveries still meaningful, the report said.

BlackRock favours higher-rated US and European junk bonds over investment-grade debt. Within high-grade debt, it prefers short-term corporate bonds because they’re less exposed to interest-rate risk than their long-term counterparts. 

Disruptions caused by AI could create more opportunities to be selective within credit, said Jean Boivin, the head of the BlackRock Investment Institute, in an interview.

“I think there’s going to be a lot more dispersion, AI disruption, and so it’s going to become an alpha story within that space,” he said. 

Uploaded by Tham Yek Lee