Morningstar - Q1 2023 - 80

Ten Questions
Wei Li shapes BlackRock's tactics
for turbulent times.
Laura Lallos, managing editor of Morningstar
magazine, interviewed Wei Li in December. The
transcript has been edited for length and clarity.
1. What characterizes 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 globalization and supply chains. Third, the
transition to net-zero carbon emissions is causing
energy supply and demand mismatches.
Wei Li is BlackRock's global chief investment
strategist. She heads 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 ETF
and index investments before taking on her
current role in 2021. She has a B.A. in
mathematics from the University of Cambridge.
Photography by David Woolfall.
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
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Morningstar Q1 2023
securities offer attractive valuations and income.
We like the front end of the government
bond curve-in the U.S. in particular-for its high
carry, high yield, and low interest-rate risk.
6. What is less attractive now?
We remain bearish on developed-market
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's 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
due to headwinds to exports, fears of rising asset
bubbles restraining policy support, and tech
restriction on the back of U.S.-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!).
10. What are you reading now?
I am on holiday now, and I am rereading Haruki
Murakami's First Person Singular. I had
forgotten the pleasure of getting lost in a book
and not rushing to get to the end.
https://www.morningstar.com/authors/44/laura-lallos
Morningstar - Q1 2023

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