A TOP BlackRock executive said there was little evidence of a meaningful switch by global investors into equities from fixed-income assets, even after recent strong sharemarket gains.
"There appears to be a lot of cash coming off the sidelines rather than a wholesale rotation out of bond markets," Russ Koesterich, chief investment strategist at the world's largest money manager, told reporters today.
Still, Blackrock continues overall to favour equities over bonds this year, the San Francisco-based executive said on a visit to Sydney, where he's meetings clients.
A flood of money into global equities last month has been described by some analysts as the start of a "great rotation" into stocks, as a perceived global recovery spurs a retreat from bonds and fuels demand for traditionally riskier assets.
Bonds have largely outperformed equity markets since the financial crisis in 2008 prompted some of the world's biggest economies, including the US, to lower interest rates to near zero and launch bond-buying programs.
Still, global stocks surged last year and continue to rise in 2013. The MSCI World Index climbed 13 per cent in 2012, and so far this year has gained more than 5 per cent. The Dow Jones Industrial Average, in the US, has had its best start to the year since 1994.
Some analysts have drawn parallels with that year, when bond prices dropped sharply as central banks moved to tighten monetary policy as economic growth picked up following a slump in the early 1990s.
According to BlackRock, however, fragile investor confidence in Europe and the US ever since the global credit crunch will continue to act as a brake on any wide-scale shift into equities from bonds.
"It will take some time to rebuild that faith in equity culture," Mr Koesterich said.
He said there was little immediate chance of US interest rates climbing, adding that any unwinding of the Federal Reserve's bond-buying program, also known as quantitative easing, would occur over many years.
Nonetheless, BlackRock, which manages almost $US4 trillion in assets, said it continued to favour equities over bonds overall, particularly in emerging countries and smaller developed markets including Australia, Canada, Switzerland, Hong Kong and Singapore.
Mr Koesterich said he was attracted to the lower sovereign-debt levels and resilient underlying economies of those wealthier countries.
"They came out of the financial crisis in much better shape than Europe, the US or Japan," he said.
As for the emerging markets, equities there still offered "compelling" valuations, said Mr Koesterich, but added that investors would need to evaluate countries on a case-by-case basis to ensure the best returns.
"China is very different to India, Brazil is very different to Russia," he said.
