BlackRock is 'underweight' emerging market stocks due to coronavirus

Pedestrians walk with umbrellas in front of BlackRock Inc offices in New York, U.S.

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BlackRock Investment Institute has an “underweight” stance on stocks in emerging markets as many of those economies are still grappling with the spread of the coronavirus, one strategist told CNBC on Thursday.

Stocks in emerging markets have lagged global share prices. The MSCI Emerging Markets Index up inched up around 0.4% so far this year — far behind the 5.8% gains in the MSCI World Index during the same period, according to data by Refinitiv.

“Broadly, tactically, we remain a little bit cautious around EM,” Ben Powell, chief investment strategist for Asia Pacific at BlackRock Investment Institute, told “Squawk Box Asia.”

“This is frankly because the virus is still extremely present and the issues around the health-care challenge and economic policy response are still not, I’m afraid to say, been dealt with,” he said.

Emerging markets have reported some of the highest numbers of cumulative coronavirus cases globally, according to data compiled by Johns Hopkins University. Four of the five countries with the largest outbreaks — Brazil, India, Russia and Peru — are emerging markets, the data showed.

Led by China, the emerging world is enjoying an earlier and stronger economic recovery than advanced economies, a development that is not yet discounted by the market.

But not all emerging markets will do badly, added Powell. He explained that he has a “clear preference” for China as well as North Asian markets, such as South Korea and Taiwan — major exporters that are benefiting from an upswing in the tech cycle. All three markets are part of the MSCI Emerging Markets Index.

Pictet Asset Management holds a different view. The Swiss investor said in its September outlook that it upgraded emerging market stocks from “neutral” to “overweight.”

It explained that China, having emerged from the coronavirus outbreak earlier, will lead the economic recovery among emerging markets. Those economies have also been more resilient than expected, and a weak U.S. dollar will likely boost their exports and reduce financing costs of their debt, it added.

“Emerging market stocks are well placed to outperform the majority of their developed peers and we therefore upgrade the asset class to overweight,” the company said in the report.

“Led by China, the emerging world is enjoying an earlier and stronger economic recovery than advanced economies, a development that is not yet discounted by the market.”