BlackRock’s Chief Investment Officer Rick Reider, who oversees management of over $1 trillion in bond investments, had some interesting insights at the recent Morningstar investment conference in Chicago.
The first is that despite the Federal Reserve’s rate hiking, bond yields will likely remain low for a long time. That should make U.S. investors feel more secure investing in bonds.
The second observation concerned the significant economic transformation occurring in China and its impact on the world economy. China continues to take steps to become a more services-driven, consumption-based economy, and in fact, China’s e-commerce revenues now make up nearly 50% of the world total.
Despite concerns with China’s debt levels and the other economic challenges it faces, the Chinese economy remains the single largest contributor to world GDP growth, representing 42% of global growth today, said Reider.
(Confused by the math? While the U.S. economy may be stronger, its growth rate is low, so it has less impact on global aggregates. China’s economy is also big, and its higher growth rate makes a bigger contribution to overall world growth).
Noted Reider: Since “China is 42% of the growth in the world today, any inflation or deflation is going to be coming from them.”