World’s largest fund manager says ASX volatility a great buying opportunity

Here’s what the world’s largest fund manager is saying about the share market right now.

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With the S&P/ASX 200 Index (ASX: XJO) hitting a new all-time high today, there is understandably a lot of excitement on the markets this Tuesday.

It’s not just the ASX 200 either. Markets around the world are thriving. The US Dow Jones Industrial Average (INDEXDJX: .DJI) crossed 35,000 points for the first time ever last week. Ditto with the S&P 500 Index (INDEXSP: .INX) crossing 4,400 points.

Whilst it’s always fun and fuzzy to see markets at all-time highs, it might also be provoking the question of ‘where to from here’ for some investors out there.

After all, it was only a few months ago that investors were getting nervous. Both US and Australian government bond yields were rising and this was sparking concerns about future inflation — and the higher interest rates that normally come with it. But these concerns are well and truly off the boil.

Back in April, investors were getting nervous after the US 10-year government bond yield hit a post-COVID high of roughly 1.75% (it was around 0.55% in August 2020). But according to CNBC today, that yield stands far lower at 1.29%.

Lower rates fuel higher shares?

Could these lower rates be calming investors? Well, the strange thing is that although the ASX blue chips are pushing the ASX 200 to the all-time highs we see today, the rising tide has not lifted all boats.

Some ASX shares, such as Afterpay Ltd (ASX: APT)Xero Limited (ASX :XRO) and Zip Co Ltd (ASX: Z1P) are nowhere near their all-time highs today.

Afterpay was $160 a share back in February. Today, it’s going for under $103 a share. Xero hit $157.99 back in January, but is trading at just over $141 a share today. And Zip Co is down more than 50% from its own February all-time high at today’s pricing.

We see something similar happening over in the US. Sure, companies like Apple Inc (NASDAQ: AAPL)Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) and Microsoft Corporation (NASDAQ: MSFT) are at, or near, all-time highs.

But other, ‘growthier’, companies like Zoom Video Communications Inc (NASDAQ: ZM)Tesla Inc (NASDAQ: TSLA), Palantir Technologies Inc (NYSE: PLTR) and Coinbase Global Inc (NASDAQ: COIN) are far from it.

So what do we make of this market disparity and volatility?

BlackRock says take advantage of volatility

BlackRock is the largest fund manager in the world. And according to a report in the Australian Financial Review (AFR) today, it sees some buying opportunities out there.

According to BlackRock analysis, the fund manager reckons any volatility that we may see as a result of inflation concerns or new COVID variants is hands down a buying opportunity going forward.

BlackRock predicts that the central banks around the world, including our own Reserve Bank of Australia (RBA), will be very slow to respond to any rise in overall prices. This, in turn, will keep “nominal bond yields lower and real rates negative – a positive for risk assets [read shares]”.

Here’s some more of what it said:

Market volatility is on the rise, as worries about new virus strains have been exacerbated by stretched positioning and light summer trading. Recent swings in market sentiment reflect the unusually wide range of potential outcomes beyond the current economic restart, in our view.

Market overreactions may create opportunities to readjust portfolios to a pro-risk stance as we maintain high conviction in our new nominal investment theme that implies low real yields.

So long story short, BlackRock believes that rates will stay low for some time and this will inevitably support rising share markets as a result. By extension, it also implies that any short-term volatility is a buying opportunity through this lens.

Something to keep in mind if you’re getting nervous about the ASX 200 at an all-time high!

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen owns shares of Alphabet (A shares), Coinbase Global, Inc., Tesla, and Zoom Video Communications. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Alphabet (A shares), Alphabet (C shares), Apple, Microsoft, Palantir Technologies Inc., Tesla, Xero, ZIPCOLTD FPO, and Zoom Video Communications. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO and Xero. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Apple, and Zoom Video Communications. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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