Diversification, discrimination now crucial for asset allocation

BlackRock is a US-based investment-management corporation with assets under management of US$4.8 trillion (Bt165.5 trillion) as of this month, making it the largest company of its kind in the world.

What is BlackRock’s strategy in terms of asset allocation for Asian markets?

Given that there is profound uncertainty in the global financial markets, the key is to think about diversification. Of course, diversification does not always mean that you can have multiple asset classes or a multi-asset strategy, which is the ideal way to diversify, as we have many clients who have a pure equity mandate or pure fixed-income mandate that we have advocated strongly for them to try – mandates that allow flexibility.

Flexibility and diversification are really the key themes.

The second theme is to have much more discrimination, and to move away from the concept of developing or emerging markets as an asset class, focusing much more on which of the emerging markets have a significant reform effort to raise the potential growth rate.

When do you expect the US to raise its interest rate?

I would expect that some time in the fourth quarter we will see the Federal Reserve initiate the policy response, but the market is reasonably well prepared to the point that it can begin the process and hold on to a gradual path.

Are you concerned about some of the emerging markets, including Thailand?

The challenge is not necessarily a matter of outflow, as the challenge will be to attract capital. If you think of the overall great pyramid of the emerging markets, it has really been driven by two factors.

One is the very disinflationary period and the very benign fixed-income market worldwide, and in the US in particular. Second, there is the tremendous growth story in China, with the seemingly endless increases in its growth rate.

If you believe that those two forces have been instrumental in supporting the emerging markets as a whole, both of those forces are no longer as powerful as they have been in the past. That is why I think the key for an emerging-market economy is to create a political and structural environment that allows growth to increase, as there is nothing that Thailand or other emerging markets can do about China and the US interest rate.

Will reform in China be effective and is there going to be a hard landing there, with 6-per-cent growth expected by BlackRock?

China’s overall economy has grown quite substantially every year, so lower growth is inevitable in the country’s transformation. In fact, I would be more worried if the reform efforts ceased in order to get the high growth rate back again than I would be about seeing lower growth as a result of the reforms.

The economy is bigger than it was five years ago and 6-per-cent expansion is still going to generate a lot of growth impulses in the world … the market will be quite forgiving of a lower growth rate, as long as it sees this as a consequence of the reforms.

I am not too worried about the growth aspect of this, and I could imagine China slowing even a bit more than it has so far as the result of this.