10 questions for BlackRock’s Wei Li

Editor's Note: This article was first published in the Q1 2023 issue of Morningstar magazine.

Wei Li is BlackRock’s global chief investment strategist. She leads the team that develops the BlackRock Investment Institute’s views on tactical asset allocation and represents the firm’s investment outlook to clients and the media. She also leads BlackRock’s EMEA China working group. Li joined BlackRock in 2010 and was the head of EMEA investment strategy for exchange-traded fund and index investments before taking on her current role in 2021. She has a bachelor’s degree in mathematics from the University of Cambridge.

Laura Lallos, managing editor of Morningstar magazine, interviewed Wei Li in December 2022. The transcript has been edited for length and clarity.

1. What characterises the investing environment today?

We are in a world shaped by supply that involves challenging trade-offs. Developed markets can’t produce as much as before without creating inflation pressure.

Central banks face a sharper trade-off between growth and inflation, and this leads to greater macro and market volatility.

2. Is this the new normal?

We see three long-term trends keeping production capacity constrained and cementing this new regime.

First, aging populations mean continued worker shortages in many major economies.

Second, persistent geopolitical tensions are rewiring globalisation and supply chains.

Third, the transition to net-zero carbon emissions is causing energy supply and demand mismatches.

3. What are the biggest policy challenges?

High inflation has sparked cost-of-living crises, putting pressure on central banks to tame inflation. Yet, there has been little debate about the damage to growth and jobs.

We think the “politics of inflation” narrative is changing, and the “politics of recession” will take over.

4. What are you watching most closely?

Navigating markets in 2023 will require more frequent portfolio changes. Our tactical portfolio outcomes will be determined by our assessment of market risk sentiment and our view of the economic damage reflected in market pricing.

We stand ready to turn more positive as valuations get closer to reflecting the economic damage from tighter policy.

5. Where are the best opportunities?

We are leaning into the income offered by investment-grade credit. Mortgage-backed securities offer attractive valuations and income.

We like the front end of the government-bond curve—in the United States in particular—for its high carry, high yield, and low interest-rate risk.

6. What is less attractive now?

We remain bearish on developed-markets equities, as we think current valuations do not reflect the damage from central banks’ overtightening.

Earnings expectations are not fully pricing in recessions. We are underweight long-dated fixed income, as we see long-term yields going higher.

7. What will be the impact of China changing its COVID-19 policies?

China is on a path toward reopening, which will help stabilize the global supply chain.

Our forecast for China’s GDP in 2023 is higher than consensus, but in subsequent years, we expect lower growth relative to the long-term average because of headwinds to exports, fears of rising asset bubbles restraining policy support, and tech restriction on the back of US-China decoupling.

8. What lesson does 2022′s perfect storm offer?

Be nimble. There are pockets of opportunity in this high market volatility.

Develop granular views to tap into those. Think healthcare in equities, front end in government bonds, investment-grade and mortgage-backed securities in fixed income, and infrastructure in privates.

9. What do you enjoy outside of investing?

I love cooking (my specialty is Chinese-Italian fusion) and karaoke (generic 1980s HK-pop), and I play golf (not well!).