Investors are being urged to prepare for a new era of heightened volatility, driven by complicated macroeconomic environments, as well as transformative forces such as the energy transition and artificial intelligence.
While these changes are expected to contribute to increased complexity, BlackRock’s chief investment strategist for the APAC and Middle East, Ben Powell, said those unwilling to take risks could struggle.
Speaking to the media on Wednesday, Powell said: “We do think things are a little bit more complicated, but it’s critical we don’t misinterpret that as saying we should be so-called risk-off. That’s an old-fashioned mindset”.
“Our framing is that it’s different – the investment macro market context has changed, so we absolutely think investors can and should be leaning into risk,” Powell said.
He explained that given this increasingly complex world, everyone will have to be “much more targeted” and “much more specific”, especially in regard to the type of risk they’re comfortable with.
“It isn’t that old paradigm of a rising tide lifting all boats – it’s going to be surfing particular currents,” he said.
Powell stressed that moving forward, investors must rethink their strategies, shifting away from an era of stable markets and predictable conditions, and instead be ready to make more dynamic portfolio adjustments.
“We as investors need to move through the five stages of grieving for the Great Moderation, that lovely time period where volatility was lower and though it didn’t feel like it, markets went up from that period let’s say after the GFC right up to COVID. Things are more complicated now,” he said.
He also suggested that adopting a more granular approach to selecting specific sectors and assets would benefit investors.
Already, volatility is becoming a more commonplace phenomenon, as demonstrated by the significant sell-off in early August which saw the Nasdaq and Dow Jones fall over 2.5 per cent, respectively. The ASX, too, plunged 3.7 per cent, equating to losses of over $160 million in just two days.
“We’re going to see more of this [volatility] again structurally in the years ahead. The market, in our assessment, is accurately reflecting a more confusing situation,” Powell said.
“We, as investors, need to be prepared for that, which means being a little bit more dynamic and more ready to act with more accuracy.”
Highlighting the importance of active management in this context, Powell warned the days of simply taking a long position are firmly in the rearview mirror.
“[During] the Great Moderation, the approach to portfolios was ‘be long and don’t touch’. We now think you’re going to have to manage your portfolio a little more effectively, which means leaning into risk, and spotting the new wave.”
