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BlackRock
Updated 21 Apr 2023
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Disclaimer

This is a non-independent marketing communication commissioned by BlackRock. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

2022 was all about interest rates and inflation as European stock markets adjust to a new environment. It prompted a significant revaluation in markets, particularly in higher growth areas such as technology, while stock market success was confined to a handful of sectors – largely energy and mining.

With the environment so uncertain, investors were unwilling to look through macroeconomic considerations to the individual strengths of specific company. The question for investors is whether that will change. In the early weeks of 2023, markets still seem to be absorbed with the ebb and flow of interest rate expectations. When the US Federal Reserve and European Central Bank pushed back on expectations of a pause in rate rises, it knocked market sentiment. Many of the patterns seen in 2022 – a weakness in the technology and consumer spending.1

However, there is hope that the interest rate environment will settle down. Inflationary pressures are ebbing and there is greater clarity on the future direction of monetary policy. We see no immediate end to stock market volatility, but clarity on the terminal rate of this hiking cycle is moving closer. This would likely be enough to bring attention back to company fundamentals – the ultimate driver of long-term equity returns.

Market expectations

For now, European equities remain under-owned, and valuations are low. Stock markets look forward and some areas of the market, particularly within more-economically-sensitive sectors, have seen a significant adjustment to their valuations as investors have increasingly anticipated recession.

Just as they have anticipated the recession, they will start to anticipate and reflect a recovery some time before it becomes clear from the data. Timing the exact moment when the cycle turns will be difficult, and we believe investors need to be positioned for it ahead of time.

In the meantime, there are brighter signs from around the global economy. While lower energy costs and easing inflation may have grabbed the headlines, investors shouldn’t forget the potential impact of China. Its rapid retreat from its zero-Covid policy and the opening up of its economy could provide a significant boost for the global economy and for companies in Europe with China exposure. Recent economic data from the US has also surprised with its strength.2

Company fundamentals

We continue to see plenty of encouraging signs from the corporate sector. Corporate balance sheets are robust, and in much better positions than in previous downturns. Many companies in Europe have spent the last decade reducing debt, which gives them more flexibility and resilience compared to the Global Financial Crisis or other significant economic downturns. Corporate spending intentions also remain healthy.

There are also pockets of real strength within certain sectors. The EU Recovery Fund, Green Deal and the REPowerEU plan, as well as the recently announced Green Deal Industrials Plan (a response to the US Inflation Reduction Act) are likely to power demand in certain sectors for years to come - in areas such as infrastructure, automation, innovation in medicines, the shift to electric vehicles, digitisation or decarbonisation. These themes are well-represented in the BlackRock Greater Europe portfolio.

We also have exposure in the healthcare area, where we see significant innovation. Equally, and in spite of 2022’s supply chain related weakness, semiconductors continue to be a major growth market, with more and more smart devices requiring increasingly sophisticated microchips to function.

We are not calling an end to market volatility in the short-term. Nor would we suggest that the market is about to shake off its current obsession with the intricacies of interest rate movements. However, eventually the picture will become clearer and when it does, there are some good news stories that merit more attention from investors. This is where we are positioning the trust for the year ahead.

1 https://www2.deloitte.com/uk/en/pages/consumer-business/articles/consumer-tracker.html#:~:text=discretionary%20spending%20falling%20for%20the%20fifth%20consecutive%20quarter%20and%20essential%20spending%20remaining%20flat. - Deloitte Q4 2022
2 https://www.wsj.com/articles/economy-showing-strength-in-early-2023-after-last-quarters-gdp-gain-revised-modestly-lower-5b068ade#:~:text=The%20U.S.%20economy%20appears%20to%20be%20exhibiting%20strength%20early%20this%20year – WSJ 23 February 2023

Risk Warnings

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

Trust Specific Risks

Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.

Currency Risk: The Fund invests in other currencies. Changes in exchange rates will therefore affect the value of the investment.

Emerging Markets Risk: Emerging markets are generally more sensitive to economic and political conditions than developed markets. Other factors include greater 'Liquidity Risk', restrictions on investment or transfer of assets and failed/delayed delivery of securities or payments to the Fund.

Liquidity Risk: The Fund's investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Fund may not be able to realise the investment at the latest market price or at a price considered fair.

Gearing Risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Important Information

In the UK and Non-European Economic Area (EEA) countries: this is issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

This document is marketing material. The Company is managed by BlackRock Fund Managers Limited (BFM) as the AIFM. BFM has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited. The Company’s shares are traded on the London Stock Exchange and dealing may only be through a member of the Exchange. The Company will not invest more than 15% of its gross assets in other listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.

Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.

The investment trusts [listed below/above/in this document] currently conduct their affairs so that their securities can be recommended by IFAs to ordinary retail investors in accordance with the Financial Conduct Authority’s rules in relation to nonmainstream investment products and intend to continue to do so for the foreseeable future. The securities are excluded from the Financial Conduct Authority’s restrictions which apply to non-mainstream investment products because they are securities issued by investment trusts. Investors should understand all characteristics of the funds objective before investing.

For information on investor rights and how to raise complaints please go to https://www.blackrock.com/corporate/compliance/investor-right available in local language in registered jurisdictions.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

© 2023 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS and iSHARES are trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

MKTGH0323E/S-2758087

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