2024

Midyear
Global
Outlook
Waves of transformation

BlackRock
Investment
Institute

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 2024 Midyear Outlook

The world could be undergoing a transformation on par with the Industrial

Revolution – thanks to a potential surge in investment in artificial intelligence
(AI), the low-carbon transition and a rewiring of global supply chains. But the
speed, size and impact of that investment is highly uncertain. And it comes
Philipp Hildebrand Jean Boivin against an unusual economic backdrop post-pandemic: sticky inflation, higher
Vice Chairman — Head — BlackRock interest rates, weaker trend growth and high public debt. We think taking risk by
BlackRock Investment Institute leaning into the transformation and adapting as the outlook changes will be key.

Wei Li The new regime of greater macro and market We think companies may need to revamp
Global Chief Investment Strategist — volatility has taken hold, shaped by supply business models and invest to stay competitive.
BlackRock Investment Institute constraints like shrinking working-age For investors, it means company fundamentals
populations. The result? Higher inflation and will matter even more. The gap between winners
interest rates amid weaker growth relative to the and losers could be wider than ever, in our view.
Vivek Paul
pre-pandemic era – and elevated public debt.
Global Head of Portfolio Research — That dispersion creates opportunities and is why
BlackRock Investment Institute But now investment opportunities transcend the our second theme is Leaning into risk. The answer
macro backdrop. We see waves of transformation to a highly uncertain outlook is not simply
Christopher Kaminker on the horizon, driven by five mega forces – or reducing risk. We look for investments that can do
Head of Sustainable structural shifts. We see three of them spurring well across scenarios and lean into the current
Investment Research and Analytics – major capital spending: the race to build out AI, most likely one. For us, that’s a concentrated AI
BlackRock Investment Institute the low-carbon transition and the rewiring of scenario where a handful of AI winners can keep
supply chains. The size, speed and impact of that driving stocks.
investment is highly uncertain, but we think it
We stand ready to adapt as and when another
could transform economies and markets like past
scenario – potentially suddenly – becomes more
Contents technological revolutions. Together with
likely as the transformation unfolds. So our third
BlackRock’s portfolio managers, we designed five
Summary 2 Focus 8-14 theme is Spotting the next wave. This is about
starkly different scenarios to assess the near-
AI buildout 8-9 being dynamic and ready to overhaul asset
term outlook, recognizing it could quickly change.
Intro 3-4 Global elections 10 allocations when outcomes – and investment
Transformation 3 Infrastructure 11 Before the pandemic, low inflation allowed central opportunities - can be vastly different.
ahead? Demographics 12 banks to slash interest rates and make massive
Weighing scenarios 4 Japan 13 Investment implications: We stay overweight
asset purchases to buoy the economy. That
U.S. stocks and the AI theme on a six- to 12-
boosted the financial economy – and helped drive
Themes 5-7 Ready to adapt 14 month view. Our overweight to Japanese stocks is
Getting real 5 Views summary 15 gains across bonds and stocks. In this new
one of our highest-conviction views. We like
Leaning into risk 6 regime, the real economy matters more. Our first
income in short-term bonds and credit. And we
Spotting the next 7 theme is Getting real. We see the biggest
see private markets as a way to tap into the early
wave opportunities in the real economy as investment
winners and the infrastructure needed for the
flows into infrastructure, energy systems and
investment boom ahead.
technology – and the people driving them.

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 Intro

Transformation
Mega capex coming
Total cumulative contributions to GDP
Capital spending Total factor productivity

ahead? AI & low-carbon

transition
2024-2030s
?
We think the world could be In a second phase, we think Information and
undergoing waves of transformation investment will broaden out to firms communication tech
on a scale rarely seen in history. seeking to harness AI – with the 1970s-2010s
Mega forces are driving this amount depending on AI’s buildout
transformation and are starting to and adoption. It is possible that this Electricity
unleash massive investment into the all results in a third phase of broad 1880s-1940s
real economy: infrastructure, energy productivity gains. See pages 8-9.
systems, advanced technology – and Steam (UK)
The low-carbon transition is also
people. We think the volume of 1760s-1840s
spurring major investment. Our
investment could be on a par with
BlackRock Investment Institute
past technological revolutions – 0 10 20 30
Transition Scenario estimates
reshaping markets and economies. Percentage points
energy system investment will hit Chart takeaway: Getting inflation all the way back down to
See the chart. Yet the speed and
$3.5 trillion per year this decade. Chart–takeaway:
target AI andline
the dotted green the –low-carbon transition
would require the Fedcould spur
to deal
scale of that investment, and its
Rising geopolitical fragmentation ahistorically
significantlarge
blowcapital spending – and in a much shorter space
to the economy.
potential impact on economy-wide
also implies investment: countries of time than previous technological revolutions.
productivity, are highly uncertain.
are prioritizing national security over
Consider AI. The race to scale up AI economic efficiency. Reconfiguring Forward looking estimates may not come to pass. Source: BlackRock Investment Institute, June 2024 with
capabilities is already spurring supply chains requires investment. data from Crafts (2021). Notes: The chart shows cumulative contribution of previous U.S. technologies
(except “steam”) to GDP over the periods indicated. The estimates for information and communication tech,
major capital spending. A range of electricity and steam are taken from historic economic literature as in Crafts (2021). The spend needed for
Uncertainty around the speed and
estimates see investment in AI data artificial intelligence (AI) and the transition is a BII estimate based on external research on data center
scale of coming investment, plus an
centers rising by 60-100% annually investment requirements and the BII Transition Scenario (for professional investors here). Other revolutions
unusual economic backdrop marked took place over decades so our estimates for AI and transition-related spend assumes an optimistic case over
in coming years. Yet it is difficult to
by supply constraints, make it tough a short span of time.
pin down exact amounts, even in the
to gauge exactly where the world is
first phase of the AI buildout. It will
heading longer term. But we see the
depend on any resource constraints
– like difficulty meeting AI’s energy
transformation evolving through We see a possible investment boom
distinct phases, like advances in the
needs on top of already growing
AI buildout first and broad adoption ahead that could transform economies
demand, including for electrification.
Innovations in computing and
later. This progression can help and markets. But the speed, scale and
provide direction – enabling us to
energy could ease those constraints.
evolve asset allocations on the way. impact of that investment is unclear.

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A
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Scenarios
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Weighing near-term scenarios

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2
6
1
7
9
3
5
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4
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1
6

U.S. returns
We use scenarios to help identify where
economies and markets may be headed on Stocks Bonds
a six- to 12-month horizon. They help put
parameters around very different states of
High rates, hard landing
Sticky inflation rules out rate cuts, and
the world – even if they don’t capture the
Yes strong demand could trigger further hikes.
many potential outcomes beyond that Growth slows sharply. AI valuations hit hard.
horizon. Are AI valuations ahead
of fundamentals?
We worked with portfolio managers across Concentrated AI
BlackRock to develop five, distinct scenarios
Will overall yields be Yes No
AI-driven growth boost not enough to
for the near-term outlook. We see two offset other structural drags. Inflation
higher than current
scenarios where equities can do well: one pressure is ongoing and policy rates stay
market pricing? high for longer.
with a concentrated group of winners in AI,
even with a tough macro backdrop, and Yes
another where AI-driven growth becomes No Subdued growth, stubborn inflation
Will growth be
more broad-based, leading to productivity Growth slows to a lower trend pace,
structurally inflation is sticky above target and policy
gains and sharp rate cuts. The two hard
weaker than rates stay higher.
economic landing scenarios differ on
before the
whether central banks can come to the
pandemic? No Broad productivity gains (AI and
rescue with rate cuts. The fifth is one of No capex boom)
subdued growth and stubborn inflation,
AI-driven growth is broad based, lifting
where inflation proves sticky, keeping Will there be a recession potential output. Inflation is muted and
central bank policy rates higher. The arrows in the next 12 months? policy rates are cut sharply.
on the right show how the assumed market
impact can diverge sharply across these Yes Rescued hard landing
scenarios. Rate hikes overwhelm a broad-based AI-
driven growth boost. Inflation falls below
We lean into the concentrated AI case, target. Central banks deliver deep rate cuts.
reflecting our view that AI valuations are
rooted in solid earnings. Yet we stand ready
to pivot – and our approach gives us a The opinions expressed are subject to change at any time due to changes in market or economic conditions. This material represents an assessment of the market environment at a
roadmap to gauge when another scenario specific time and is not intended to be a forecast of future events or a guarantee of future results. Sources: BlackRock Investment Institute, July 2024. Notes: Our five scenarios here can
becomes more likely. We think expertise in be represented as nodes on different pathways. The arrows indicate our expectation for U.S. equity and Treasury returns in each scenario, as two examples. Two arrows represents that a
larger relative move is expected in this scenario than a single arrow. We only show U.S. equities and Treasuries but have run this analysis across several asset classes. For illustrative
identifying these scenario shifts could help
purposes only.
investors deliver outsized returns.

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 Theme 1

Getting real
Nvidia and the AI moment
Years to go from $10 billion to current market capitalization

Nvidia
We see much of the potential large As the real economy takes over from 3
investment flowing into the pipes the financial economy, we think
and people of the economy. Think investors should actively position for Apple

Trillion (U.S. dollar)

new data centers powering AI waves of transformation like we have
models, computer chips, solar farms, rarely seen before, we think. 2
super batteries, factories, logistics Amazon
We see widespread opportunities for
centers – and roads, bridges,
companies that innovate and Tesla Microsoft
schools and hospitals in countries
position themselves to take Meta
with growing populations. It’s a new 1
advantage of this transformation.
wave of investment into the real
That includes building capabilities Alphabet
economy transforming economies
to harness AI, for example. Spotting
and markets. It’s a world where
winners will require deep insights on
company fundamentals will matter 0
the technology being developed, its
even more, we think. 0 5 10 15 20 25 30
applications and the potential
Chart takeaway: Getting inflationYears
all the way back down to
This is a big change from the pre- disruption it entails.
target – the dotted green line – would require the Fed to deal
2020 dominance of the financial Chart takeaway: Nvidia’s surge reflects the big investment
We are seeing that play out now with a significant blow to the economy.
economy. Steadily expanding global expectations as a result of the rise of AI.
companies building strong cash
production capacity and growing
flows from the real economy thanks
workforces kept macro volatility at
to their dominant positions. Nvidia’s This information is not intended as a recommendation to invest in any particular asset class or strategy or as a
bay: whenever growth faltered, promise – or even estimate – of future performance. Past performance is not a reliable indicator of future
price surge shows how fast winners
central banks could come to the results. Source: BlackRock Investment Institute, with data from Bloomberg, July 2024. Notes: The chart
can emerge – and be rewarded. shows how long it took for the “magnificent seven” stocks to go from $10 billion to its current market
rescue without fearing an inflation
capitalization.
flare-up. This stability reduced Companies who fall behind are likely
uncertainty and allowed central to struggle in this environment –
banks to signal their intentions well partly because central banks won’t
in advance. Such a favorable be able to respond easily with lower
backdrop buoyed most companies, rates if growth weakens, in our view.
leaving little room for differentiation We are not going back to a time of Investment implications
among businesses and stock cheap and plentiful capital. • We like infrastructure and industrial
pickers. We think that era is over. companies exposed to the investment boom.
• High-for-longer policy rates prompts us to
favor quality in both fixed income and equities.

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 Theme 2

Leaning into risk Companies larger than country stock markets

Market capitalization of select U.S. companies and stock indexes, 2005-24

3
The transformation could take any of Second, be deliberate in choosing
several very different paths: it could the type of risk exposure. A few

Trillions (U.S. dollar)

lead to a broad productivity boom or winner-takes-all companies have
to AI winners becoming overvalued, driven U.S. equity gains this year. We 2
for example. Investors may feel don’t see the concentration of equity
tempted to sit on the sidelines and performance as a problem as mega
await clarity – especially given the caps have delivered on earnings. Yet
attractive returns from holding cash. we actively choose to lean more 1
Yet we see bigger rewards for heavily into AI than benchmark index
leaning into risk in this environment. weights. Two big U.S. tech firms each
We think markets are likely to keep have a market capitalization larger
rewarding perceived AI winners in than the entire UK or German 0
the next six to 12 months – benchmark stock indexes. See the 2005 2010 2015 2020
regardless of where the chart. Microsoft Apple UK Germany
transformation leads longer term.
Chart takeaway: Getting inflation all the way back down to
Third, be deliberate about blending Chart–takeaway:
target Some line
the dotted green U.S. –company stocksthe
would require areFed
nowtolarger
deal in
We think investors should take risk different sources of return across avalue than the
significant entire
blow benchmark
to the [Link] of some nations, showing
more deliberately now, across public and private markets. We think how they can dominate broad index exposures. This emphasizes
multiple dimensions. First, consider both active strategies and private why investors must be deliberate with their risk-taking.
the time horizon. We have most markets play a bigger role now – and
conviction about the near term. We see private markets as a way to gain This information is not intended as a recommendation to invest in any particular asset class or strategy or as a
think large technology companies access to the early journeys of firms promise – or even estimate – of future performance. It is not possible to invest directly in an index. Index
performance does not account for fees. Source: BlackRock Investment Institute, with data from LSEG
investing heavily in the AI buildout, set to win in a potentially rapid
Datastream, July 2024. Notes: The chart shows the market capitalization of Apple, Microsoft and the UK and
chip producers and firms supplying transformation. We also see broader German stock markets. Index proxies used for UK and German equity markets: MSCI UK and MSCI Germany.
key inputs like energy and utilities opportunities in private markets
can keep doing well. That’s why we than public ones. That’s especially
lean into the concentrated AI true in a world where elevated debt
scenario. See pages 8-9. Beyond limits the ability of government to Investment implications
tech, we like sectors such as invest in infrastructure. Still, private • We lean into an above-benchmark exposure to
industrials and materials that are markets are complex and not
the AI theme. We also like sectors such as tech,
also set to benefit in the near term. suitable for all investors.
industrials, energy and materials.
• This is an environment that favors private
markets and blending sources of returns.

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 Theme 3

Spotting the Starkly different outcomes

Stylized view of two different U.S. GDP outcomes

next wave
5.2 5.2

5.1 5.1

5 Broad productivity 5
We are in a world where multiple, It could mean a world that looks very boom
starkly different – or “polyfurcated” – different from the low growth, low 4.9 4.9

Real GDP
outcomes are possible. This means inflation environment that
we can no longer view the outlook in dominated in the decade after the 4.8 4.8
terms of slight deviations around a global financial crisis. Such Constrained
4.7 4.7
central outcome. We need to look at profound changes could make it growth
whole new ways of how the waves of necessary to rethink what a long- 4.6 4.6
transformation could reshape the term anchor for asset allocation
economy and asset returns ahead. looks like. 4.5 4.5

Distributions are a useful way to What does this mean in practice? 4.4 4.4
think about this. A central base case Investors should look for where the 2015 2020 2025 2030 2035 2040
meant a single distribution was next wave of investment opportunity Chart takeaway: Getting inflation all the way back down to
Chart takeaway: Investing today means thinking about how
target – the dotted green line – would require the Fed to deal
sufficient in the past for describing may come – and be ready to
potential outcomes. We think overhaul portfolio allocations to athe world can
significant look
blow tostarkly different in the future – with
the economy.
completely different outcomes – rather than considering only
looking at the world in multiple capture it. This is not only about the
deviations around a central outcome.
distributions – with very little overlap next six months or year, but about
between them – is a better way of recognizing the possibility of very
characterizing the possible scale of For illustrative purposes only. Forward looking estimates may not come to pass. Source: BlackRock Investment
different future states of the world.
Institute, July 2024. Notes: The chart shows a stylized view of how U.S. GDP could play out under different
the waves of transformation ahead. On the next page we lay out three scenarios where growth is lower than it was pre-pandemic, constrained by workforce aging, and another
We show two distinct branches for phases of AI evolution to help track where growth is boosted over the next decade by an AI-driven productivity boom, before falling below pre-
U.S. GDP with distributions around the path of global transformation. pandemic growth rates. We show one standard deviation bands around those stylized outcomes.
them to illustrate this. See the chart.
Diverging growth pictures are just
one example of the very different
We believe an active approach is Investment implications
ways in which the economy could
key as we face very different
reconfigure. A transformation • A wide range of outcomes means standing
states of the world.”
potentially on a par with past ready to overhaul portfolio allocations to
technological revolutions could see Helen Jewell capture opportunities from profound changes.
entire sectors revamped. Chief Investment
Officer EMEA, • Investors may need to rethink what a long-
Fundamental Equities term anchor for asset allocation looks like.
– BlackRock

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 Focus – AI

AI’s rapid Massive energy and investment needs

Data center power demand as a share of total U.S. demand, 2022-2030

buildout now… 16%

14%

Share of total power demand

The AI juggernaut – still largely a AI’s power needs are expected to 12%
U.S. story - has powered the S&P grow in coming years, even with 10%
500 this year. We think AI is central further energy efficiency. See the
to the transformation – and could chart. Policy and regulation could 8%
make up a large part of the coming put the brakes on buildout, too. For 6%
investment wave. We believe AI can example, policymakers may step in if
keep driving returns across most data center growth pushes up local 4%
outcomes. We don’t see a tech energy prices. And rules on the use
2%
bubble: earnings and of AI could impact adoption. Supply
Estimates IEA estimate
fundamentals support current bottlenecks could also slow progress 0%
valuations. Case in point: Nvidia’s as demand grows for metals and 2022 2024 2026 2028 2030
forward earnings have kept pace minerals like copper, aluminum and
with its rocketing share price so far. lithium – already in high demand as
Chart takeaway: The power needs for data centers that feed
We think an understanding of how inputs for the low-carbon transition. AI applications like large language models are set to grow –
AI could evolve from here is key. We but the pace is uncertain. Meeting those needs could require
see three distinct phases. massive investment in power grids and renewable energy.
2 AI investment broadens
Forward looking estimates may not come to pass. Source: BlackRock Investment Institute, International
1 AI buildout Here we see investment broadening Energy Agency (IEA), Goldman Sachs, BGIF, Bank of America, Schneider, Semianalytics, Bernstein, McKinsey,
Boston Consulting Group, and BlackRock's Fundamental Equities team, May 2024. Notes: The chart shows
to firms looking to harness AI. We data center power demand as a share of total U.S. power demand in 2022. Data center power demand
AI relies on vast computing power,
see some of that already, especially includes those from traditional data centers and artificial intelligence (AI) computing/dedicated AI data
so some large technology firms are
in healthcare. It and other sectors centers and excludes consumption from crypto currencies and data transmission networks.
racing to invest in data centers to
like financials and communication
secure that power. We’re at the
services could benefit, potentially
start of this phase. Early winners
lifting economic growth. Yet both
are already emerging, including
phases 1 and 2 could be inflationary: Investment implications
those tech firms, chip producers
and firms supplying key inputs like
building AI and retooling creates • AI’s buildout could initially be inflationary as
extra demand before any supply- demand for energy and commodities surges.
energy, utilities, materials and real
side or productivity benefits arise.
estate. Yet the buildout faces
We don’t think markets or central • Early winners could include large tech firms,
challenges, notably whether the
power grid can grow fast enough.
banks appreciate that yet. chip makers and energy and utility firms –
before benefits expand to other sectors.

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 Focus – AI

…could boost Reward comes with a lag

U.S. IT investment rate and productivity growth, 1970-2024
4%

productivity later 4%

3%

Productivity growth
And it was decades before the 1970-

IT investment
3 Productivity boom
80s computer and tech revolution
3%
2%
paid off. It’s not impossible this
In this very uncertain phase, AI
phase starts within a year, but we
could enable economies to 2%
think several years is more likely.
produce more with the same 1%
amount of capital, labor – and The potential winners in this phase
energy as AI-enabled innovation are less clear-cut than in the earlier
potentially balances out AI’s power phases. It could be just a subset of 1% 0%
needs. Technological innovations companies that own the key tech. Or 1970 1980 1990 2000 2010 2020
have done that before. The chart certain parts of society: For example, Information tech investment (% of GDP)
shows broad computer adoption if AI enhances worker productivity,
Productivity growth (right)
drove up average output per hour wages could rise – with benefits felt
by over 1 percentage point for widely across the economy. In all Chart takeaway: Rising investment in information tech during
nearly a decade. AI could eventually events, AI is likely to spur a broad the 1970s and beyond delivered meaningful productivity gains in
help economies grow faster and reallocation of workers across the U.S. – but only with a lag.
ease inflation pressure, in our view. sectors. Even with this uncertainty,
the potential for big future rewards Source: BlackRock Investment Institute, U.S. Bureau of Economic Analysis with data from Haver Analytics,
The size and spread of productivity July 2024. Notes: The chart shows U.S. historic productivity growth and the rate of investment in information
supports the case for investing now
gains from AI are uncertain. Capital tech processing equipment and software as a share of nominal GDP.
and our AI overweight.
could be misallocated in the AI
race. Estimates of AI’s boost to
annual U.S. growth range from 0.1
to 1.5 percentage points. We find AI could eventually deliver
the lower end more realistic – it will broad productivity gains –
depend on sector adoption and yet the path is uncertain.” Investment implications
cost savings. Yet these gains can
only come after AI capabilities are
• The third phase is deeply uncertain, yet any AI-
Simona Paravani-
fully deployed. That could take Mellinghoff
led productivity gains could be deflationary
years, followed by the typical lag. It Co-Head of Multi-Asset and enhance growth.
took nearly a century for the steam Strategies & Solutions –
engine to boost productivity. BlackRock • Potential for big future rewards underpins the
importance of investing now.

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 Focus – Global elections

Elections spur Persistently large

Government debt-to-GDP ratios, 1940-2024

granularity
170
Previous U.S. peak
120
As countries representing over half Global elections add to the
of the global population go to the geopolitical volatility we see. This is

Ratio
70
polls this year, voters are focused a challenging time for incumbents.
on economic issues including the We see a structural shift toward
surge in the cost of living. Yet geopolitical fragmentation,
20
record or elevated government exacerbated by ongoing competition
debt levels limit leaders’ ability to with China and protectionist
address these concerns. See the measures in areas like advanced -30
chart. technology and electric vehicles – 1940 1960 1980 2000 2020
both in the U.S. and EU. U.S. Euro area
Neither candidate or major party in
the U.S. presidential election has Global supply chains are rewiring in UK Canada
made debt and deficits a key response – and that will involve new
campaign issue – or shied away infrastructure needs. See the next Chart takeaway: We think large deficits reinforce persistent
from advocating more sizable page. Countries like India and inflation and higher-for-longer interest rates. Debt levels for some
spending. These ongoing budget Mexico stand to benefit over the countries are near or beyond World War Two peaks.
deficits reinforce persistent long term as intermediate trade
inflation pressures and our view partners between economic and
the Federal Reserve will keep rates geopolitical blocs. That’s one reason
higher for longer. That’s why we see we get granular with our country Forward looking estimates may not come to pass. Source: BlackRock Investment Institute, International
investors demanding more preferences. Monetary Fund and Macrohistory (Jorda et al., 2017), with data from Haver Analytics, June 2024. Notes: The
chart shows the historic and estimated level of government debt as a share of GDP.
compensation for the risk of
holding long-term U.S. bonds –
and favor shorter-term bonds.
Globalization has proved
We think France’s unprecedented resilient – but it is also more Investment implications
political stalemate after its expensive.”
parliamentary election and weak
• We turn overweight UK stocks. The potential
fiscal outlook will draw greater Tom Donilon
for relative political stability and attractive
investor scrutiny. This contrasts Chairman, BlackRock valuations may pull in foreign investors.
with perceived policy stability in the Investment Institute
UK after its election.
• We like inflation-linked bonds on a strategic
horizon, partly due to elevated debt levels.

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 Focus – Infrastructure

Infrastructure Investment-demographic link

G20 population and investment growth, 2000-2019

opportunities 8
India
Indonesia

Saudi Arabia

Investment growth
6
Infrastructure is at the intersection Across markets, demographic
South Africa
of the mega forces driving the divergence is shaping investment
4
waves of transformation. AI is a key needs. Typically, the faster a [Link]
aspect of economic competition population grows, the faster capital
2
among countries, while the investment grows to support U.S. Brazil Mexico
investment in data centers is growing populations. See the chart.
starting to impact the low-carbon And developed markets will need to 0
Japan
transition as well. Net-zero invest to adapt to aging populations.
emissions targets of the See the next page. -2
companies investing the most in -0.5 0.5 1.5 2.5
A huge gap exists between the total
the AI buildout could drive up
amount of infrastructure investment Population growth
demand for renewable energy.
needed globally and the amount
AI’s energy needs could magnify governments can spend given high Chart takeaway: The faster a population grows, the faster
the already massive investment debt levels in many countries. We capital investment grows, we find. Opportunities arise where
expected, as noted earlier. see private markets bridging the gap investment has not kept up with that growth.
Infrastructure investment is key to – though private markets are
funding the low-carbon transition: complex and not suitable for all
By the 2040s, we estimate that investors.
low-carbon investment will Source: BlackRock Investment Institute, World Bank Development Indicators, UN, with data from Haver,
March 2024. Note: The chart shows the relationship between average population growth and average real
account for up to 80% of energy investment growth, as measured by the gross fixed capital formation component of GDP, between 2000 and
spending, up from 64% now. 2019. The chart includes data up to 2019 to avoid the pandemic’s distortion of the data.

We see geopolitical fragmentation

We are seeing the AI
reinforcing energy pragmatism as
countries seek to balance the buildout boost demand for
renewable energy.” Investment implications
transition with energy security and
affordability. The rewiring of supply
• We see private markets filling the gap between
chains is driving infrastructure
David Giordano infrastructure investment needs and what
Global Head of
demand globally and we favor the Climate Infrastructure
governments can spend.
emerging markets set to benefit. – BlackRock
• We prefer infrastructure equity to other private
growth assets on a strategic horizon.

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 Focus – Demographics

Demographics Slow to price in aging

Japan healthcare outperformance vs. dependency ratio, 1970-2024

matter now 300 85

Relative performance
250 75
Demographic trends tend to be By contrast, working-age
65

Ratio
seen as long term in nature and not populations in many EMs are still 200
impacting returns now. We growing. We see opportunities in
disagree. Rising life expectancy those that best capitalize on their 150 55
and falling birth rates mean the demographic advantage, such as by
working-age population – usually improving workforce participation
100 45
defined as 15-64 years old – is and investing in infrastructure.
shrinking in many developed Countries with higher investment
50 35
markets and China. That means demand – India, Mexico and Saudi
1970 1980 1990 2000 2010 2020
those economies will not be able to Arabia – may offer higher returns. Healthcare sector vs broad market index
produce as much and grow as Dependency ratio (right)
Across countries, we think investors
quickly as in the past.
need to assess what markets have Chart takeaway: The growth of retirees in Japan was well
These developments impact labor priced in. Research finds markets documented years in advance. Yet Japan’s healthcare stocks have
markets and sector-level demand can be slow to price in the impact of only risen in value – relative to the broader market – as that
now. Aging could be inflationary: even predictable demographic growth in retiree population actually materialized.
retirees stop producing economic shifts. See the chart. That looks to be
output but don’t typically spend the case in the U.S. and Europe, like Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not
account for fees. It is not possible to invest directly in an index. Source: BlackRock Investment Institute, United
less. Governments are likely to Japan before – and is why we favor
Nations, Reuters, with data from LSEG Datastream, March 2024. Notes: The orange line shows the ratio of
spend more on healthcare. We the healthcare sector in both. the performance of Japan’s healthcare equity sector vs. the overall market index, indexed to 1990. We use
think that’s another reason why total market indices constructed by Datastream.
central banks will likely have to
keep policy rates higher.
Aging populations underpin
Governments can respond by our favorable outlook for the
trying to boost the workforce healthcare sector.” Investment implications
and/or productivity by investing in
automation and AI. These
• Different demand patterns in aging
Carrie King
strategies can provide some offset, Chief Investment Officer
populations create opportunities in sectors
but it’s unlikely to be enough. We of U.S. and Developed like healthcare.
see opportunities in countries that Markets, Fundamental
better adapt to aging.
• We favor countries like India and Saudi Arabia
Equities – BlackRock
benefitting from younger populations and
infrastructure investment.

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 Focus – Japan

Why we like Japan for the long term

Hypothetical strategic allocation to Japan equities

Japan
12%

10%

Japan is at the forefront of major We hold an above-benchmark

8%
economies grappling with an aging allocation, or overweight, to
population. Yet its economic revival Japanese equities in our strategic
6%
– and return of long-missing views – with a preference for an
inflation – makes its equity market unhedged exposure vs. currency
4%
one of our strongest convictions on hedged. See the chart on the right.
both on tactical and strategic We see a medium-term
2%
horizons. improvement in corporate earnings
as the return of inflation and worker
In the near term, a benign macro 0%
wage gains gives companies greater
backdrop and brightening Benchmark Currency hedged Unhedged
pricing power. We are watching for
corporate fundamentals –
signs of a structural inflows into
including ongoing reforms to Chart takeaway: We favor an above-benchmark allocation to
local stocks from households after
improve profitability – prompted us Japanese equities in long-term portfolios as a benign macro
an overhaul to the country’s tax-
to go further overweight Japanese backdrop brightens the outlook for corporate profits.
exempt investment vehicles.
equities. At the same time, the
Bank of Japan is being patient in Finally, we see mega forces creating
normalizing policy after raising compelling sectoral opportunities in This information is not intended as a recommendation to invest in any particular asset class or strategy or
as a promise – or even estimate – of future performance. Source: BlackRock Investment Institute, June
policy rates for the first time in Japan – such as in healthcare – and
2024. Notes: The chart shows our hypothetical allocation to Japanese equities as a percentage of the
nearly two decades. favoring a more active approach. overall equity in a strategic portfolio with a long-term investment horizon of 10 years relative to their
weights in respective benchmarks, on both a currency hedged and unhedged basis. We use the MSCI
Japan’s stable macro outlook – ACWI for equities. Indices are unmanaged. It is not possible to invest directly in an index
with mild inflation feeding higher
wages and corporate pricing power Japan’s economic revival
– has also reinforced our upbeat has strong roots, creating
outlook for equity returns on long-term opportunities.” Investment implications
strategic horizons of five years or
longer. In our view, that means
• We like Japanese stocks on both tactical and
Yuichi Chiguchi
Japanese stocks warrant a higher Japan Chief Investment
strategic horizons, one of our highest-
allocation on such horizons of five Strategist and Head of conviction views.
years or longer than the Japan Multi-Asset
benchmark would suggest.​ Strategies & Solutions – • We think sectors like healthcare can benefit
BlackRock from aging populations.

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 Views

Ready to
adapt Big calls
Our highest conviction views on tactical (6-12 month) and strategic (long-term) horizons, July 2024
Our scenarios framework helps ground our views on a
Tactical Reasons
tactical horizon. Yet we could change our stance
quickly if a different scenario were to look more likely. • We have high conviction that AI can keep driving returns in most scenarios.
This is one reason why we may need to think about We see its buildout and adoption creating opportunities across sectors. The
AI and U.S. equities
strategic asset allocation differently in the future – AI theme has driven U.S. stock gains and solid corporate earnings, making
building on our long-held view that strategic views us overweight U.S. stocks overall.
should be dynamic in this new environment. It is no • This is our highest conviction equity view thanks to support from the return
longer possible to base strategic views on just one Japanese equities of mild inflation, shareholder-friendly corporate reforms and a Bank of
central view of the future state of the world with some Japan that is cautiously normalizing policy – rather than tightening.
deviation around it, in our view.
• The income cushion bonds provide has increased across the board in a
We have seen the AI theme drive broader equity Income in fixed income higher rate environment. We like quality income in short-term bonds and
returns in the first half of the year – and we stick with credit. We’re neutral long-term U.S. Treasuries.
our overweight. Beyond the U.S., we like emerging
Strategic Reasons
market countries like India and Saudi Arabia that are
positioned to benefit from mega forces. We like • We think private credit is going to earn lending share as banks retreat – and
Private credit
Japanese stocks across horizons – and recommend at attractive returns relative to public credit risk.
strategic allocations larger than what index • We prefer inflation-linked bonds as we see inflation closer to 3% on a
benchmarks would suggest. Fixed income granularity strategic horizon. We also like short-term government bonds, and the UK
stands out for long-term bonds.
We also still like earning quality income in short-term
government bonds and credit on both tactical and • We favor emerging over developed markets yet get selective in both. EMs at
strategic horizons. Sticky inflation makes us prefer the cross current of mega forces – like India and Saudi Arabia – offer
Equity granularity
inflation-linked over nominal long-term bonds on a opportunities. In DM, we like Japan as the return of inflation and
strategic horizon. corporate reforms brighten our outlook.

We stick to our long-term preference for private credit

Note: Views are from a U.S. dollar perspective, July 2024. This material represents an assessment of the market environment at a specific time and is not intended to be a
even as spreads have tightened and we make
forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any
cautious default assumptions. Why? We see private particular funds, strategy or security.
credit stepping up to play a bigger role in lending.

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Tactical granular views
Six- to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, July 2024

Our approach is to first determine asset allocations based on our macro outlook – and Fixed
View Commentary
what’s in the price. The table below reflects this and, importantly, leaves aside the income
opportunity for alpha, or the potential to generate above-benchmark returns. We don’t
think this environment is conducive to static exposures to broad asset classes but creates Short U.S. We are overweight. We prefer short-term government
more space for alpha. Treasuries bonds for income as interest rates stay higher for longer.
We are neutral. Markets have cut expectations of Fed rate
Long U.S.
cuts and term premium is close to zero. We think yields will
Equities View Commentary Treasuries
keep swinging in both directions on new economic data.
Global
We are neutral. We see higher medium-term inflation, but
We are overweight given our positive view on inflation -
cooling inflation and growth may matter more near term.
the AI theme. Valuations for AI beneficiaries linked bonds
are supported as tech companies keep We are neutral. Market pricing reflects policy rates in line
United States beating high earnings expectations. We Euro area
with our expectations and 10-year yields are off their highs.
think upbeat sentiment can broaden out. govt bonds
Political developments remain a risk to fiscal sustainability.
Falling inflation is easing pressure on
corporate profit margins. We are neutral. Gilt yields have tightened to U.S. Treasuries
UK gilts
and market pricing of future yields is in line with our view.
We are underweight. Valuations are looking
more attractive. A pickup in growth and Japanese We are underweight. Stock returns look more attractive to
Europe govt bonds us. We see some of the least attractive returns in JGBs.
European Central Bank rate cuts support an
ongoing earnings recovery.
China govt We are neutral. Bonds are supported by looser policy. Yet
We are overweight. Political stability and a bonds we find yields more attractive in short-term DM paper.
growth pickup could improve investor
UK U.S. agency We are neutral. We see agency MBS as a high-quality
sentiment, lifting the UK's low valuation
MBS exposure in a diversified bond allocation and prefer it to IG.
relative to other DM stock markets.

We are overweight. Mild inflation and Short-term We are overweight. Short-term bonds better compensate
shareholder-friendly reforms are positives. IG credit for interest rate risk. We prefer Europe over the U.S.
Japan We see the BOJ normalizing policy – not
tightening aggressively. A weak yen is a drag We are underweight. Spreads are tight, so we prefer taking
Long-term
on returns for international investors. risk in equities from a whole portfolio perspective. We
IG credit
prefer Europe over the U.S.
We are neutral. The growth and earnings Global We are neutral. Spreads are tight, but the total income
Emerging
outlook is mixed. We see valuations for India high yield makes it more attractive than IG. We prefer Europe.
markets
and Taiwan looking high.
Asia We are neutral. We don’t find valuations compelling
We are neutral. We see risks from weak credit enough to turn more positive.
consumer spending, even with measured
China
policy support. An aging population and We are neutral. The asset class has performed well due to
EM hard
geopolitical risks are structural challenges. its quality, attractive yields and EM central bank rate cuts.
currency
We think those rate cuts may soon be paused.

We are neutral. Yields have fallen closer to U.S. Treasury

EM local
 Previous view yields, and EM central banks look to be turning more
Underweight Neutral Overweight currency
cautious after cutting policy rates sharply.
Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. The statements on alpha do not consider fees. Note: Views are from a U.S. dollar perspective. This material represents an assessment of
the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.
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BlackRock Investment Institute
The BlackRock Investment Institute (BII) leverages the firm’s expertise and generates proprietary research to provide insights on macroeconomics, sustainable
investing, geopolitics and portfolio construction to help Blackrock’s portfolio managers and clients navigate financial markets. BII offers strategic and tactical market
views, publications and digital tools that are underpinned by proprietary research.

General disclosure: This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities to any person in any jurisdiction in which an offer,
solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The opinions expressed are as of July 2024, and are subject to change without notice. Reliance upon information in this material is at the sole discretion of the
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