There is too much short-termism in investing and foreign investors should be diversified in order to survive this period of market volatility, Kapito said in an interview with Bloomberg Television’s Susan Li today. BlackRock is the world’s largest money manager with $3.9 trillion in assets.
Kapito made the comments after BlackRock’s chief investment strategist in fixed-income, Jeffrey Rosenberg, said in an interview published yesterday that losses in emerging-market debt may deepen as outflows worsen. Kapito said the weakness in emerging markets is “overdone” and he expects equity markets to perform better than fixed income.
“The emerging markets are going to account for about 60 to 65 percent of the world’s growth over the next 20 years,” said Kapito. “If you are investing for the long term, this is a good opportunity to get reinvested into the emerging markets.”
Investors have pulled out money from emerging markets amid speculation that the U.S. Federal Reserve will start to curtail easing policies as soon as this month, marking an end to cheap money inflows that had propped up asset prices from India to China and Indonesia.
Those who had moved into developed equity markets have the ability to move back into emerging markets “very quickly,” Kapito said. “It’s a little bit of an overdone situation on the downside and we’re starting to see movements back in.”
Fed Chairman Ben S. Bernanke told Congress on May 22 that the central bank could scale back the pace of its $85 billion of mortgage bond and Treasuries purchases if the U.S. economy showed sustained improvement.
Exchange data show foreign institutions pulled $8.4 billion from Indonesian, Korean and Thai stocks this year amid signs of slowing regional economic growth. The MSCI Southeast Asia Index has dropped about 17 percent from the May peak.
Investors have taken $22.1 billion out of emerging-market bond funds since the end of April, almost five times the withdrawal from U.S. corporate credit, according to data provider EPFR Global.
That reversed the trend that saw $58.8 billion pour into funds that buy emerging-market debt last year, chasing yield amid a U.S. stimulus program that’s funneled more than $2.6 trillion into the financial system since September 2008.
The worst outflow from emerging markets has yet to be seen, Rosenberg said in a telephone interview with Bloomberg News. Losses for emerging-market debt have the potential to accelerate, he said, adding the rout may eventually present a buying opportunity.
Kapito expects equity markets to perform better than fixed-income markets.
“We do see improvements around the world, which will put pressure on fixed income, but that will actually help equities,” he said.
Investors can take measures to mitigate risks on potential increases in interest rates by investing at the short-end of the yield curve and looking for securities that are less interest-rate sensitive, he said.
The U.S., which went into a recession five years ago as spiraling home values prompted a credit seizure, will probably grow by 2.7 percent next year and 3 percent in 2015 from 1.6 percent this year, a Bloomberg survey of 73 economists shows.
The Fed this month will taper its monthly bond purchases to $75 billion from the current $85 billion pace, according to the median estimate of 34 economists surveyed on Sept. 6 by Bloomberg News. The next meeting of the Fed’s policy making Open Market Committee is scheduled for Sept. 17 and 18.
Bill Gross, co-founder Pacific Investment Management Co. and manager of the world’s biggest bond mutual fund, said the Fed will go ahead with a plan to reduce the unprecedented asset purchases even with the disappointing jobs report.
The addition of 169,000 workers last month trailed the 180,000 median forecast in a Bloomberg survey of economists.
Kapito said that BlackRock, which already employs more than 2,000 people in Asia and manages more than $300 billion in long-term assets, continues to hire in the region.
“As the market grows, we need to do the appropriate amount of research,” he said. “I expect this to be the most important region in the world” for BlackRock.
To contact the editor responsible for this story: Andreea Papuc at email@example.com