BlackRock Asia Pacific Head of Multi-Asset Strategy’s latest view: “The free lunch” is over, asymmetric volatility drives new investment opportunities.
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In the current market environment marked by frequent geopolitical events and high macroeconomic uncertainty, the underlying logic of global capital allocation is undergoing a profound transformation. On June 3, at the BlackRock China five-year anniversary forum, Nikhil Mehra, Head of Multi-Asset Strategies and Solutions, Asia Pacific at BlackRock, provided the latest analysis on global economic outlook and asset allocation.
Mehra believes that the current market is facing asymmetric volatility, which differs from the long-term performance of markets in the past, bringing new investment opportunities and challenges for portfolio management. He recommends that investors downplay short-term geopolitical noise and focus on AI-driven multi-year structural capital expenditure, while warning that the traditional stock-bond seesaw effect has failed—investors must rethink portfolio construction.
Global Economic Growth Unaffected by Short-Term Factors
Regarding the "noise" from geopolitical risks such as the Middle East conflicts currently prevalent in the market, Mehra pointed out that these short-term fluctuations driving commodity prices up will not persist long-term; from a macro perspective, global growth remains very stable.
“Despite the volatility and uncertainty we see, if you look at broad economic activity—such as global industrial production—it grew by 5% in the first quarter this year,” Mehra said.
He supports the resilience of the economy with data and identifies the core driving force behind it—structural capital expenditure, which is happening in many economies. These expenditures are mainly for AI-related infrastructure and will be a multi-year theme.
Based on this underlying economic strength, BlackRock maintains a positive outlook toward risk assets. Mehra emphasized: “This is why we have confidence to ignore short-term noise.”
Positive Attitude Toward the Chinese Stock Market
Mehra also stated that BlackRock holds a positive view on China’s stock market. Especially in sectors related to AI in the A-share market, valuations in China are relatively cheaper compared to global industry peers. As a result, relevant stocks can play a very important role in an investment portfolio.
In terms of cyclicality, BlackRock believes that managing positions is very important. They’ve observed that the interaction between supply and demand is different from before, and inflation is now a key risk in portfolios.
Mehra also noted that while optimistic and confident about the stock market, they will continue to track prospects for sustained profit growth. But from a portfolio perspective, it is necessary to consider diversified strategies, which is also a core viewpoint at BlackRock.
The “Free Lunch” Is Coming to an End
Portfolio diversification across multiple assets, and achieving a lower volatility for the same expected return, has been known as the “free lunch” of portfolio theory.
However, Mehra reminds us that this “free lunch” is coming to an end.
The macroeconomic backdrop over the past five years has led to dramatic shifts in monetary policy and asset correlations. Mehra believes that stocks and bonds have become positively correlated: when the stock market rises, the bond market also rises; when stocks fall, bonds also fall.
Nonetheless, there are still many opportunities in the market. The dispersion between assets of different countries has increased, and the separation between traditional stock-bond assets and alternatives remains distinct. Through sufficient diversification, another efficient portfolio can be created.
Long-duration fixed income can no longer bring greater benefits to investors. “Don’t extend your duration (invest in longer-term bonds),” Mehra said.
Digging for Alpha Is Now the Most Critical Decision
Facing the challenge of both stocks and bonds declining, and the growing yield gap between countries and asset classes, Mehra provided BlackRock’s solution: take the initiative and search for Alpha (excess returns).
“For decades, we’ve focused too much on portfolio Beta (market returns). Now the most critical decision is to think about Alpha in the portfolio,” Mehra stated.
To achieve this, he offered three important suggestions:
First, broaden the investment scope. Introduce alternative assets such as hedge funds and private markets, as their correlation with traditional stock and bond assets is limited—making them a direct way to gain Alpha.
Second, allocate counter-cyclical assets like gold. Mehra says that multi-asset portfolios should typically allocate 2% to 5% to gold. Although correlations between gold and government bonds of developed countries have recently increased, historically gold has not had high correlations with stocks or bonds, and during a 40% stock market drop, gold delivered positive returns over the same period.
Third, enhance the proactivity of asset allocation. Rather than static holding, investors should have the ability to grasp opportunities and efficiently use risk budgets.
Mehra also gave advice specifically for long-term pension investments. He emphasized that pension investment must be “results-oriented,” rejecting one-size-fits-all static allocation, and should be dynamically adjusted according to life cycle phases. He also stressed harnessing the power of compound interest: “Start as early as possible, the earlier, the better—this may be the key to success or failure.”
Risk Warning and DisclaimerThe market has risks; investment requires caution. This article does not constitute personalized investment advice, nor does it take into account individual users’ special investment goals, financial situation, or needs. Users should consider whether the opinions, views, or conclusions in this article suit their particular circumstances. Investing based on this article is at your own risk. ```