Chinese Tech stocks
In recent months, Chinese regulators have increased their scrutiny of some of the country’s largest technology firms, including e-commerce giant Alibaba and ride-hailing app Didi. As part of Beijing’s efforts to rein in monopolistic practices and regulate data collection and use, the companies are now facing fines and new operating rules.
“What concerns us is not only the combination of regulations, but also where China is in the growth cycle. As a result, we’ve stayed on the sidelines,” said Mary Nicola, multi-asset.
Nicola stated that China’s stock market in general has been “very attractive” in terms of valuation. She has, however, been concerned about regulation for “quite some time.”
Risks to the global economy
She added that, aside from regulatory risks, the main concern that could affect the performance of Chinese stocks is what is happening in the economy.
According to Nicola, credit growth in China is slowing, and policymakers are attempting to normalize policy. These factors are contributing to a climate that could have a “very big impact” on Chinese stocks in the coming months, she said.
The Shanghai composite index in China lags behind many of its regional peers. As of Wednesday’s close, the benchmark had risen 1.6 percent this year, compared to Taiwan’s Taeix’s 21.1 percent gain and South Korea’s Kospi’s 13.6 percent increase.
Investing in technology
Despite staying away from Chinese internet stocks, Nicola stated that PineBridge Investments’ focus remains on the broader technology space.
“The key thing that we’ve been focusing on with technology is more of what corporates are investing in,” she said, citing software, cloud computing, the internet of things, and artificial intelligence as areas where businesses are investing.
“We believe there is room for growth, especially since many companies are focusing on increasing productivity, and we see this even more in a post-Covid world.”
The inflation factor
BlackRock co-founder, CEO Larry Fink thinks the U.S. stock market’s long-term trend continues to be solid, especially after a powerful recovery since the coronavirus collapse last year.
“I’m not trying to imply it’ll go upwards straight and there may be disappointments. But generally, I think the trend will still be upward with the amount of fiscal stimulus and monetary stimulus and especially the amount of cash that is to be put to work, “Fink said.
Fink, who also serves as chairman of the world’s largest asset manager, believes the market’s rise will be “slower” than some would like in the second half of 2021.
“Perhaps it will be very moderate for the next six months as we digest how the world is able to handle the delta variant and the speed with which vaccinations occur around the world,” Fink said, referring to the highly transmissible coronavirus strain that has public-health officials concerned. “And then, two, what is the inflation rate going to be in six months and a year?”
Inflation and its impact on the economy and markets is a hot topic right now, as the United States’ economy recovers from pandemic-related slowdowns and disruptions.
While Federal Reserve Chairman Jerome Powell and other central bank officials have maintained that higher-than-normal inflation will be temporary and largely due to the reopening of Covid, Fink believes otherwise.
“I am concerned about inflation. “I do not believe inflation will be transitory,” Fink stated. Instead, he believes “it will become more systematic over time.” “How the Federal Reserve and other central banks navigate that will be very important,” he added.
In the years following the 2008 financial crisis, inflation in the United States remained largely below the central bank’s target of 2%. It has been higher in recent data readings, including Tuesday’s consumer price index report for June. Shortly after Fink spoke, the producer price index for June came in above expectations, rising 1% month over month versus estimates of a 0.6 percent gain. The headline PPI increased by 7.3 percent year on year, while the core rate increased by 5.6 percent.
Fink stated that his forecast for higher inflation is based on factors other than pandemic-related supply chain bottlenecks, though the latter is important right now. “I believe it represents a fundamental, foundational shift in how we navigate economic policy,” he said.
“I believe that our post-World War II economic policy was based on consumerism. We have always believed that the cheapest products for Americans are the best way to ensure that more Americans have more options. We’ve moved away from that foundational belief in the last five years, and now we’re saying jobs are more important than consumerism,” Fink said.
According to Fink, there has been a greater emphasis on making supply chains less geographically concentrated. This includes efforts to bring manufacturing back to the United States after decades of it being outsourced.
“That will almost certainly lead to more inflation,” Fink predicted.
Fink, who has become one of Wall Street’s most outspoken advocates for combating climate change, also stated that the shift away from fossil fuels and toward renewable energy is something to keep an eye on.
“If we do not focus on the demand curve in our energy transition and instead focus solely on supply, we will see rising energy prices.” I wonder what that means if we have $100 oil or $120 oil [per barrel]. That will be inflationary as well,” Fink predicted.
Some Wall Street analysts predict that oil will rise to $100 per barrel during the current energy cycle.
“I firmly believe that we will see wage increases and all that, so all of this points to 3.5 percent inflation or higher in the coming year,” Fink added.
Some, such as Jeremy Siegel of the Wharton School of Finance, argue that higher inflation is not a problem for the stock market. In an interview, Siegel emphasized his point, saying, “I’m not selling my stocks” despite believing the Fed is wrong about inflation.
The potential impact on the stock market is unknown, according to Fink.
“Inflation is good for equities if we can pass on the prices and it doesn’t change the margin, or if we can create better productivity, which we’ve done over the last 20 years,” Fink said. “If inflation is not absorbed in the margins through productivity, we will see flattening or declining margins.” That will be the pivotal question in terms of equities.”
Fink’s remarks On Wednesday, BlackRock reported higher-than-expected earnings and revenue for the second quarter of 2021. Assets under management increased by 30% year on year to $9.5 trillion.