Guru watch

The Goldilocks era of full employment, economic stability, and steady growth, is over, says Wei Li, the global chief investment strategist at BlackRock, the world’s largest asset manager. The pandemic ended the “Great Moderation” – a period of low macroeconomic and market uncertainty that had been a boon to investors.

“It didn’t really matter if you had a 60/40 portfolio or a 40/60 portfolio,” Li told a summit organised by the Australian Financial Review. “As long as you were invested, you were able to really benefit from this Goldilocks environment.”

Now we have shifted to what BlackRock dubs the “New Regime” era, in which central bankers will find it difficult to balance inflation and growth due to supply issues exasperated by conflict and geopolitical tensions. Investors should enjoy the current spell of strong market performance while they can, because conditions may get tougher.

“The journey of bringing inflation down, the journey of rate cuts starting, and the journey of avoiding a recession – it’s a feel-good journey,” Li says. “But the destination of higher rates, higher inflation, and lower long-term growth is something that we really need to think about as we position portfolios.”

Investors will need to take a more active approach to navigate five major changes: artificial intelligence (AI) and digitisation, the shift to lowcarbon economies, ageing populations, geopolitical rivalries, and changes in the financial system, including the growth of private credit.

The continued rise of the “Magnificent Seven” group of US tech stocks (Apple, Amazon, Alphabet, Nvidia, Meta, Microsoft, and Tesla) shows how forces such as AI are already driving markets, but a buy-and-hold approach to backing these giants won’t be enough.“The era of generalist investing when it comes to AI is over. We actually need real specialists [who are] able to be very discerning.”