The perfect storm of war and inflation hit financial markets last year sending both equities and bonds on a southern detour, and after experiencing such volatility, the world’s largest asset manager, US-based BlackRock, has made a few changes for 2023, writes BlackRock Investment Institute in a weekly market commentary. 

”Last year’s shocks were extreme,” the manager notes in the update:

”We must widen the lens of possible scenarios because the new regime of higher macro and market volatility entails a wider range of outcomes.”

BlackRock’s second lesson pertains to asset prices.

”Geopolitical risk now warrants persistent risk premia across asset classes, rather than being something markets only react to when it materializes. We see a fragmented world of competing blocs replacing an era of globalization and geopolitical cooperation,” the update reads.

The company’s third realization is the need for an entirely new investment playbook:

”We need a new investment playbook in the new regime. This means not being lulled into thinking what worked in the past will work now, like automatically buying the dip. We see stock rallies built on hopes for rapid rate cuts fizzling. Why? Central banks are unlikely to come to the rescue in recessions they themselves caused to bring inflation down to policy targets,” writes BlackRock Institute.

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