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2 Opportunities Amid Today’s Market Volatility
January 22, 2016
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2016 has come in like a lion, at least with regards to stock market volatility. Many of the same factors that sparked a rockier road in the second half of 2015, including declining oil prices and an economic slowdown in China, have been roiling markets so far this year.

Indeed, according to Bloomberg data, volatility as measured by the VIX index, is now at levels last seen early last fall, after China’s “Black Monday” stock market crash rattled global markets. Looking forward, we believe the volatility is likely here to stay.

Beyond concerns about commodities and global growth, markets are also struggling with falling earnings, tighter financial conditions, tighter liquidity and accelerating credit downgrades. In addition, with geopolitics taking stage and many currencies outside of the U.S. devaluing, I see few catalysts for a change in sentiment over the shorter term.

Places to find potential growth

But while there are certainly reasons for investors to be cautious in 2016, the choppy road isn’t necessarily a reason to run to the sidelines. I believe there still are attractive market opportunities offering potential growth. So, as you prepare your portfolio for the volatility ahead, here are two investing ideas to consider.

Europe. In Europe, the European Central Bank (ECB) recently reiterated its willingness to ease monetary conditions further to stimulate economic growth, possibly as early as its next policy meeting in March. Indeed, according to the central bank’s recently released meeting minutes, there’s a desire from some ECB members to execute even deeper cuts in their deposit rate, already in negative territory.

In other words, Europe remains squarely in a monetary easing cycle, which is jump starting the region’s credit growth and overall business cycles. This environment created a tailwind for Europe’s equity markets in 2015, and I expect it will continue to help the region’s stocks in 2016.

Japan. The Japanese market is a similar story. Stocks in Japan benefited last year from continued easy money from the Bank of Japan (BOJ), and I see sustained monetary policy easing continuing to support the market going forward in 2016. Additionally, corporate governance reform could continue to improve shareholder returns in Japan into 2016.

To be sure, these markets aren’t without risks for U.S. investors, including currency risk. While I expect the yen to continue trading in a very narrow trading range, the euro could decline further, considering that the ECB is in the early innings of its stimulus program. So I advocate U.S.-based investors consider hedging their euro exposure.

Last year, this approach seemed to work. According to Bloomberg data, the MSCI Japan and MSCI EMU 100% USD Hedged Index both outperformed the MSCI ACWI in 2015, delivering 7.6 percent and 4.9 percent respectively, both well above the ACWI index’s -3.7 percent return. And I believe this approach could work in 2016 too.

Overall, I see 2016 bringing more of what we saw in 2015, namely increased volatility and the need for investors to be selective in their search for growth and stability. It’s clear that news about oil prices and China’s growth can quickly create a “risk-off” environment that impacts markets globally. For now, I see growth potential in Europe and Japan, and as I see additional opportunities develop, I’ll be sure to write about them here.

For more on my current market views and how to take action, visit iShares.com/iThinking.

Heidi Richardson is a Global Investment Strategist at BlackRock. She is also Head of Investment Strategy for U.S. iShares.

Investing involves risk, including possible loss of principal.

Index returns are for illustrative purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Index returns do not represent actual iShares Fund performance.  International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets and in concentrations of single countries.

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The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

The information presented does not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy or investment decision.

This document contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

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Source: BlackRock Blog ETFs
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