BlackRock turns cautious on emerging markets, upgrades euro bonds

Investing.com -- BlackRock Inc. has downgraded its view on emerging-market equities to neutral from overweight for the next six to 12 months, citing concentration risks in artificial intelligence-linked companies, according to its 2026 mid-year global investment outlook released by the BlackRock Investment Institute.

The world's largest asset manager pointed to risks in markets including Taiwan and South Korea that have heavy exposure to AI-related firms. The downgrade comes as emerging-market stocks recorded their steepest weekly loss since early March last week, pressured by a tech selloff and expectations of a more hawkish Federal Reserve.

"Geographic diversification does not reduce concentration risk when multiple markets are tied to the same value chain," the report said. "Such concentration risks cause us to downgrade broad EM equities."

The MSCI Emerging Markets Index is on track for its worst month since March.

BlackRock maintains its positive stance on US stocks, where technology companies represent a large portion of the market. "We seek broad AI exposure through US tech, leading us to overweight US equities," the report said. "Even if the ultimate winners are unclear, many are likely to be found there."

In fixed income, the New York-based company upgraded short- and medium-term euro-area government bonds to overweight from neutral, stating that investors are overestimating how long monetary policy will remain restrictive.

BlackRock kept its underweight position on long-term US government bonds, as persistent inflation driven partly by spending on AI infrastructure has reduced these bonds' safe-haven appeal.

The firm favors higher-rated US and European junk bonds over investment-grade debt. Within high-grade debt, it prefers short-term corporate bonds due to lower interest-rate risk compared to long-term bonds.

Jean Boivin, head of the BlackRock Investment Institute, said AI disruptions could create more opportunities for selective investing within credit markets

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