Blackrock now favors US stocks, cuts outlook on Japan

NEW YORK: BlackRock Inc (BLK.N) is upgrading its view of U.S. stocks and cutting an earlier recommendation to invest in Japanese stocks, according to a note the company distributed on Thursday. BlackRock, the world's largest asset manager, raised its outlook for U.S. stocks given what the company described as the "resiliency" of the world's largest economy. "Overall, we are optimistic and believe modest economic growth is ahead," the note said. "Together with stronger-than-expected inflation measures, the economy appears to be taking global uncertainties in stride, and fears of an approaching recession could be somewhat overblown."

In the same note, BlackRock cut an earlier recommendation favoring Japanese stocks, saying market turbulence and a strong yen may erode earnings of the country's exporters.

"Market volatility has surged since the Bank of Japan's (BOJ's) announcement of negative interest rates in late January, and a significantly stronger yen is raising downside risk to exporter earnings," the New York-based company said in the unsigned note. "The financials sector is likely to come under greater pressure should interest rates move deeper into the negative." Last month, BlackRock strategist Russ Koesterich described Japanese stocks as cheap and "oversold," saying a move by the BOJ to lower rates would likely weaken the yen and strengthen the country's stock values.

That Feb 12 call ended up being prescient. Japan's widely watched Nikkei index .N225 rose about 13 percent since then. Year to date, the index is off by more than 11 percent. BlackRock also added a recommendation favoring bonds in developed markets outside the United States given what it said was a halt in the appreciation of the U.S. dollar. The fund manager reduced its outlook on stocks in the United Kingdom given uncertainty ahead of the country's June 23 referendum on whether to remain in the European Union.