Investors need to look to emerging markets as demographics across developing markets will keep interest rates low for ‘years to come’, according to BlackRock’s chief investment officer for fixed income Rick Rieder.
Speaking at an income roundtable, Rieder, who is co-manager on the BlackRock’s Fixed Income Global Opportunities fund, said: ‘We have a different view than others. We believe that the traditional way of measuring the economy is flawed.’
He added that one of the biggest influences is not monetary policy but demographics.
In the developed world there are fewer people entering the workforce, thus dulling consumption, said Rieder. The decreasing number of workers entering the economy is placing downward pressure on interest rates, particularly in Japan and throughout Europe.
‘We will continue in a lower growth world than we have historically whether monetary policy tries to offset it or not. Inflation is going to organically stay lower than it has historically,’ said Rieder.
‘In Japan and Europe rates will remain low or lower for years to come. The US can start to lift them. Part of this is why you need to diversify your rate exposure.’
The US case
The US is a different story to its counterparts in Europe and Japan, as they are in a position to raise rates, said Rieder.
‘The US economy is at a really strong level. I don’t believe that it’s the best of the worst,’ he said, ‘[However,] interest rates are going to stay low for a long time because we’re in a different world for demand for income and demographics and lower rate of inflation.’
He added that the sceptics that despair over the US economy because of the recent ‘softer numbers’, such as payroll, have to take a step back and think about the context of an economy that is operating quite well in a global economy that is facing difficult demographic headwinds.
As for where to diversify, Rieder mentioned emerging markets, and his co-portfolio manager, Amer Bisat elaborated and said Brazil, Indonesia and Argentina, are examples of where they are placing fixed income bets.
Rieder added that, in the US, they are investing in non-agency mortgages, and the residential market as it could continue to do well.