Bond and stock synchronicity major Q4 worry – BlackRock

Added 3rd October 2016

BlackRock has identified a higher correlation between equity and bond prices and the US election as the greatest worries in the short-term.

Bond and stock synchronicity major Q4 worry – BlackRock

Based on one month-correlations, BlackRock analysis has found that bonds and stocks have broken from their traditional inverse pattern and are trading in greater synchronicity.

In its Global Investment Outlook for Q4 2016, the asset manager noted that while longer-term correlations between the asset classes are still negative, there may be some indication that this will change.

In particular, BlackRock’s analysis suggests that there is a rise in correlation between equities and bonds around expectations of the Federal Reserve raising rates.  

And BlackRock contends ‘bond proxies,’ high yielding equities that have been increasingly sought after in a period of low, and in many cases, negative rates, will be especially vulnerable to this increased synergy.

To combat the harmful effects of bonds and equities moving in tandem, investors should look to gold as a natural diversifier and cash as a portfolio buffer, BlackRock advised.

Like countless others in the industry, BlackRock lists the US presidential election a chief risk to take into account toward the end of the year, particularly if Donald Trump wins.

But it does not underestimate the potential volatility from other political events on the European stage, including the Italian Referendum and the EU-Turkey refugee deal.

BlackRock views China, on the other hand, as less of an immediate threat, at least in the short-term. China has managed to achieve a ‘Goldilocks depreciation,’ and has been able to use a weaker yuan to get a handle on the deflationary concerns threatening its industrial sector.

“Investor sentiment toward Asia in general is improving: the region’s export engine shows signs of gaining momentum, and growth-enhancing reforms are taking place,” the firm said.

“As a result, we have become more bullish on Asian equities, in particular selected Indian, Indonesian and Hong Kong-listed Chinese shares.”

However, BlackRock stressed that medium-term risks, such as a credit bust and a renewed downward pressure on the yuan could not be discounted.

Kames Income Hub


Vincent McEntegart, manager of the Kames Diversified Monthly Income Fund, explains how he aims to deliver a stable and sustainable income of 5% p.a.*, paid monthly, by investing in a range of asset classes

Square Mile Research

Premier Multi Asset Global Growth - Alex Farlow
Premier Multi Asset Global...

Talking Factsheets is a video service for users...

Visitor's Comments Add your comment

Add Your Comment

We won't publish your address

About Author

Kristen McGachey

Senior Reporter

Kristen joined Last Word Media and the world of financial journalism in April 2016, leaving behind a career in a legal publishing firm as a senior researcher turned assistant editor.

This native Angelino initially moved to the UK in 2008 to complete her undergraduate studies at the University of Nottingham. She subsequently obtained a Masters degree in Philosophy with Literature from the University of Warwick.



Investment Strategy




PA Dublin October 2017
PA Dublin October 2017

Tuesday 10 October
Westbury Hotel, Dublin

PA US 2017
PA US 2017

Tuesday 17 October
Furniture Makers' Hall

PA Channel Islands November 2017
PA Channel Islands November 2017

Tuesday 14 November
Royal Yacht Hotel, Jersey

PA Alternative Ucits November 2017
PA Alternative Ucits November 2017

Tuesday 7 November 
Furniture Makers' Hall

Sponsored Content