US Economic Outlook amid Fed Tightening

SPEAKER_1 (0:02)

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Tom Keene (0:27)

So she got a promotion, which means she gets to keep her frequent flyer miles. Global Chief Investment Strategist at BlackRock, thrilled that Gargi Chaudhuri could join us here. So when they gave you a new title, what do they do? Do they take out to dinner or get an extra Starbucks coffee?

Gargi Chaudhuri (0:47)

Good morning, friends. It's great to be here. Well, when you get a promotion, they tell you that you have to travel to a few different places.

And you get to do your old job and your new job, so that's wonderful.

Tom Keene (1:00)

What are you telling, in your travels, what are you telling equity investors away from America about American exceptionalism and about the American AI equity market?

Gargi Chaudhuri (1:13)

So I was just in Asia for a couple of weeks. It was fantastic. And this question about how should I diversify away from the concentration of AI came up a lot.

And we are telling investors that AI remains our strongest conviction, whether you do that in the US, whether you do that in Korea, whether you do that in Taiwan, that remains our strongest conviction. But more and more, given the concentration in the markets, you do need to be thinking about parts of the market. We call it the beyond AI trade. And we talk about this in our latest Fall Investment Directions, where we talk about, hey, look at parts of the market like healthcare, which historically, when you've had the semiconductor selloff, has held in better. Look at parts of the market like dividends, where again, if you're focusing on near-term cash flows, obviously paying dividends, that has, especially in the July selloff, been a better hedge for the AI trade. So investors outside of the US like the AI trade, but they want opportunities to diversify away, and they're looking for ideas to do that, both in broad markets, but also looking at places like India and Japan as some of the drivers of the non-AI move in the markets.

Paul Sweeney (2:22)

By the way, I love your investment deck. It's so user-friendly. I love the format that BlackRock uses. I would steal it if I were still into the deck.

Tom Keene (2:30)

Is a deck a PowerPoint?

Matt Luzzetti (2:31)

Yeah, and it's just easy to use.

Paul Sweeney (2:33)

I mean, having built a thousand of these over my career, I like this format here.

You say outside the US, you prefer emerging markets. Talk to us about that. What is an emerging market for you, and why do you let them?

Gargi Chaudhuri (2:45)

You know, as being someone from the emerging markets, when I started in the market, you know, call it 25 years ago, a huge amount of focus on EM was around, you know, what's the dollar doing? What is the domestic trajectory of balance sheets, etc. Right now, today, the new emerging market, when you look at the composition of something like IEMG, which is our I-Shares EM ticker, it's very pivoted towards, it's very much pivoted towards the AI name. So, the three biggest components of that are China, Korea and Taiwan. And what you're getting there is a lot of earnings growth and a huge amount of AI. So, we are, because we're convicted on the AI theme, we're definitely telling investors EM is another way. It's a new EM, it's not the old EM, it is going to give you earnings growth of 44% that you didn't get in the past.

The positioning of the dollar does matter, but in an AI world, maybe a little less so.

Paul Sweeney (3:45)

Do I get this AI exposure in emerging markets at a lower valuation?

Matt Luzzetti (3:50)

Because I can get inviolability at 17 times.

Gargi Chaudhuri (3:52)

Absolutely, I think that's the new way. Invulnerability at 17 times earnings.

Paul Sweeney (3:55)

Yeah, a forward earnings.

Gargi Chaudhuri (3:56)

That is one of the things that we're pointing out in investment directions, given the pullback in the summer, given the massive leverage unwind that we all know that took place in the summer. You're going back to countries like Korea and Taiwan, given the earnings growth at a much lower PE than you were in the beginning of the year. So better valuations, given some of the volatility. But I do want to be clear of one thing. I think there is volatility ahead in the markets. We're constructive, but constructive doesn't mean calm.