BlackRock strategists predict more credit crisis ripples

In a presentation to a roomful of journalists, BlackRock’s chief investment officer of fixed income Scott Amero said that although US banks have written down much of their expected losses in risky derivative products such as collateralized debt obligations and structured investment vehicles, non-US banks in Asia and Europe probably have more to go.

But Amero added that the market had priced in many of these expected writedowns, so the impact should be muted when they occur. Furthermore, Amero said he expects the European Central Bank to begin easing interest rates this year, arguing it has been too hawkish in a period of volatility in financial markets.

BlackRock’s chief equities strategist Robert Doll noted that investor sentiment toward the financial sector remained negative, and that for the moment too much uncertainty remains to know how much further the writedowns will go.

Doll added that BlackRock’s portfolios are currently emphasizing investments in growth companies over value, large companies over small, and multinational investments over domestic.

For its US portfolios, BlackRock is heavily weighted toward health care and technology companies, with less weighting on financial stocks.

Amero said: “We are in the middle of a de-leveraging cycle, as CDOs and structured investment vehicles unwind and banks try to stop growing their balance sheets.”

Banks have therefore been less likely to make loans, he said, and as a result US consumers will spend less than in recent years because of the housing downturn and rising prices in food and commodities.

Amero said there are opportunities now in “high-quality fixed-income assets” such as corporate bonds and securities backed by commercial mortgages.

He said: “There are studies showing that the comparison between highly rated commercial mortgage-backed securities and sub-prime securities doesn’t hold, and the US corporate bond market is also very cheap.”

In December, BlackRock chief executive Laurence Fink said that low treasury yields indicated that many investors had placed their assets in safe asset classes, and that when equity markets finally stabilize, the resulting bull market could be dramatic.

BlackRock president Robert Kapito reiterated that view when he said: “I believe there are more cash and cash alternatives in investor hands at the moment than at any time in history.”