23rd July 2012

BlackRock Midyear outlook – standing still…but still standing

About 50 BlackRock portfolio managers recently gathered to discuss the investment landscape for the second half against a backdrop of slowing global growth. The latest BlackRock Investment Institute publication captures these discussions, updates our 2012 investment scenarios and pinpoints opportunities in global equities, fixed income, natural resources and alternative investments.

Slowing growth across the world has led us to increase the odds of our Stagnation scenario, dominated by anemic growth in the developed world and bouts of violent risk-on/risk-off trading. We have downgraded the chance of Divergence in the second half, although we still believe emerging market economies and asset prices will outperform those of the developed world.

We have slightly decreased the chance of our Nemesis crisis scenario to 15-20% -- still uncomfortably high. We have adjusted the probabilities of our remaining scenarios, inflation and growth, but they remain very low. We first described these scenarios in "2012: The Year of Living Divergently" in January 2012.

The main signposts for changing course are the eurozone's ability to fix its banking system and to outline a credible plan for a closer fiscal union; the US's economic momentum and handling of the looming "fiscal cliff"; and visible payoff of China's efforts to restart growth.

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