BlackRock: "China's Economy Slows to 3% Range... Time to Reassess Investment Weighting"

Philip Hildebrandt, Vice Chairman of BlackRock, the world's largest asset management firm, stated on the 7th (local time) that the investment allocation in China should be reassessed amid the economic slowdown trend.

In an interview with Bloomberg TV that day, he said, "China's economic growth could slow to the 3% range by the late 2020s due to demographic transitions."

Vice Chairman Hildebrandt pointed out, "The Chinese economy is slowing down both cyclically and structurally," adding, "Changes in the relationship with the United States are also a factor where investors need to bear additional risks."

He emphasized, "Until now, increasing exposure to China was an obvious investment strategy, but now a different calculation must be applied," and "It is time to reassess how to allocate investment weightings in China."

This statement came amid rising geopolitical tensions between the U.S. and China, making it inevitable to approach the Chinese market with caution. As the U.S. pursues de-risking policies against China, various investment restrictions are being implemented, leading to changes in the investment strategies of American companies in China. The day before, Sequoia Capital, considered the largest venture capital (VC) firm in the U.S., announced that due to intensifying restrictions on investments in China, it would split its China business into three independent companies separate from its global business division.

Bloomberg News noted that the lifting of China's zero-COVID policy and the subsequent economic reopening had raised expectations as a driving force for global economic recovery. Consequently, global investors increased their investments in China despite recession risks and geopolitical tensions. However, the strategy of betting on China's reopening ultimately proved futile.

[Image source=Reuters Yonhap News]

Vice Chairman Hildebrandt also expressed views that dampen market expectations regarding monetary policy. He stressed the need for further interest rate hikes, saying, "Central banks worldwide still have much to do until core inflation falls to target levels."

In that regard, he directly criticized, "I think the U.S. Federal Reserve (Fed) is putting in less effort than the European Central Bank (ECB)." He added, "Expectations for central banks' monetary policies worldwide are unrealistic," and "To control inflation, experiencing a mild recession is inevitable."

This contradicts market expectations that the U.S. has reached a sufficient level of tightening. After the release of the minutes from the May Federal Open Market Committee (FOMC) meeting, market expectations have grown that the Fed will hold interest rates steady this month. The FOMC statement removed the phrase 'additional policy tightening,' leading to assessments that the current policy rate has reached a restrictive level.