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BlackRock said it expects world stock markets to squeeze out another year of gains and that it was cautiously shifting into more ‘cyclical’ assets such as Japanese stocks and emerging market and high yield debt.

Scott Thiel, chief fixed income strategist for BlackRock Investment Institute, the bank’s research arm, cited a nudge higher in growth in the first half of 2020 and an improvement in the “mood music” around protectionism as reasons for the optimism.

“We are modestly positive on risk assets,” said Scott Thiel, chief fixed income strategist for the BlackRock Investment Institute. “Market returns will be consistent with late cycle dynamic.”

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BlackRock said it was turning neutral on U.S. equities after their stellar performance this year, and was modestly underweight on European equities and European government bonds, preferring U.S. treasuries instead or emerging markets where interest rates are likely to keep falling.

“Growth should edge higher in 2020, limiting recession risks,” it said in its 2020 Global Outlook report. “This is a favorable backdrop for risk assets. But the dovish central bank pivot that drove markets in 2019 is largely behind us.

“Inflation risks look underappreciated, and the lull in U.S.-China trade tensions could end. This leaves us with a modestly pro-risk stance for 2020.”

BlackRock is the world’s largest asset manager, so any views from its Investment Institute are closely followed.

Thiel said another reason for his positive stance on local currency-denominated emerging market debt was that the U.S. dollar was expected be broadly steady or slightly weaker next year. The were a breakdown in U.S.-China trade talks or if China failed to deliver on modest stimulus expectations.

“We believe the incentives for the U.S. and China to hit pause on their trade conflict are strong in 2020, although there could be turbulence along the way,” the outlook report said.

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