With all the focus on Europe, I thought it would be useful to highlight the views of BlackRock’s Bob Doll, Chief Equity Strategist for Fundamental Equities. Not only are BlackRock the world’s largest fund manager by assets, they are also based in New York and offer us a view with a broader global context.

The worst of the correction is behind us

“Given the magnitude of the recent currency and sovereign debt concerns, equity market performance is likely to be driven by the broad macro outlook rather than company-specific fundamentals. This is usually the sort of environment where volatility remains high in both directions. It is important to remember that corrections during times of economic recovery are normal, but are often intense and quick. Regarding the current correction, we believe the worst should be behind us in terms of the magnitude of the downturn, but it will likely take some additional time before markets can repair themselves. Looking ahead, one positive factor is that market valuations have become more attractive in recent weeks, as prices have dropped while earnings have increased. Over time, we expect that additional clarity around the situation in Europe and financial market reform in the US should provide a measure of stability; and a sense that the economic recovery remains on track should help spark a turnaround in the recent aversion to higher-risk assets”

Possible directions for European debt crisis

“There appear to be three possible directions that the European debt crisis could take. The first, and most pessimistic, would be something similar to what happened in late 2008, when the global financial system entered a free fall after the collapse of Lehman Brothers. We think such a scenario is unlikely, as there are several important differences between the credit crisis of 2008 and the events of today. Namely, credit risks involving governments are significantly more transparent than those surrounding subprime loans and collateralized debt obligations were a couple of years ago; the broader global economy is firmly in recovery mode; inflation levels are low; the banking system as a whole is in better shape; and global policymakers are highly attuned to the downside risks.

The second scenario would be a longer-term continuation of a volatile trading range as the competing crosswinds of economic growth and increased liquidity battle against deteriorating credit conditions and widespread uncertainty. This has been the case for the past several weeks, and we do expect this backdrop will continue.

The third scenario would be a victory by the bullish forces that could result in a renewed rally for risk assets. We do expect to see this result at some point—such was the case after the January/ February downturn. The fundamental uncertainty surrounding credit issues, however, could make the current trading range persist for longer.”

The views expressed above are those of Bob Doll, Chief Equity Strategist for Fundamental Equities at BlackRock.  Kielty Cashell Financial are experienced Pension & Investment Advisers.  If you wish to have your Pension and/or Investment Portfolio reviewed please contact us by email on This e-mail address is being protected from spambots. You need JavaScript enabled to view it or by phone on 071 919 4000.

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