BlackRock upgrades EM, Asia stocks on Blue Wave expectations from US election

[NEW YORK] BlackRock upgraded Asia ex-Japan and emerging market equities to overweight one day ahead of the US election on expectations of a Blue Wave.

"Positive spillovers to global growth from increased fiscal stimulus, more predictable US trade and foreign policy and the prospect of a weaker (US) dollar" all bode well for emerging market assets, its research arm's team of strategists and researchers led by global chief investment Strategist Mike Pyle said in the note dated Nov 2.

Fund managers are continuing to price in a Democratic sweep - where Joe Biden wins the US election and the Democrats take both houses of Congress.

That result is expected to bring with it more infrastructure spending, a rally in laggard value and cyclical shares globally, as well as a more predictable approach by the US toward China.

The success by China and other Asian economies in controlling the virus outbreak better than the West and their being further ahead in restarting their economies have also prompted the upgrade on Asian ex-Japan equities, the authors of the BlackRock Investment Institute report said.

It was previously neutral on Asian equities outside Japan and underweight emerging market stocks.

The MSCI Asia Pacific Index has already been outdoing US peers for more than two months; the gauge beat global shares by the most since the global financial crisis last month.

BlackRock isn't alone in upping its call on regional stocks. On a note dated Friday, JPMorgan Chase & Co said overweighting emerging Asian equities and currencies was the safest trade going into the polls provided investors believe Mr Biden will win.

Here are some of the other views from BlackRock's research arm:

- Downgrades European equities to neutral as the region's major economies reintroduce restrictions following a resurgence in cases.

- Downgrades Japanese shares to underweight. "A weaker (US) dollar could send the Japanese yen up, putting pressure on the country's export sector," they wrote.

- A Democratic sweep would lead to a "more strenuous anti-trust review", which would weigh on large-cap technology stocks and pharmaceutical firms.

- Overweight the "size style factor" in the US and prefers smaller, high-growth companies.

BLOOMBERG