00:00John Bavan of BlackRock writing, U.S.-Iran negotiations collapsed for now,
00:04but we see talks as evidence of an economic incentive to end the conflict.
00:08We upgrade risk in the U.S. and EM stocks.
00:12John joined us now for more. John, good morning.
00:13Good morning.
00:14Let's just start from the very beginning.
00:16After the news over the weekend, many people were looking for a washout in risk,
00:20particularly given the weekly gain we just had last week.
00:23Just walk through why things are so much more stable than anticipated so far today.
00:27Yeah, I mean, you know, this is a very volatile environment,
00:30and there's a danger to be trading the headlines by the minute.
00:36We've turned neutral risk, downgraded risk, sorry, on March 23rd.
00:41At that point, we thought, like, you know, oil prices were, you know,
00:45resetted very high in the above 110 range.
00:49And in a world like this, if it's sustained, we don't see how equities and risk assets can perform.
00:54And so we downgraded risk.
00:57But since we've seen the ceasefire being put in place last week,
01:03we didn't expect that to be a smooth ride for two weeks.
01:06But the point is that the ability to at least have talks and, you know,
01:11reduce the tension for the time being, at least on the military side of things,
01:17to us shows that there are very powerful economic incentives at play
01:21that will shape the response of all the actors.
01:24I mean, it's not only about the U.S. or Iran, it's also about China.
01:27And we think that this is evidence of that being pretty powerful for now.
01:31So that's what is behind that upgrade for now.
01:34You're not the only one who's come to that conclusion.
01:36I'll put that there.
01:37How you express risk, though, is interesting.
01:39U.S. equities, you could say, is anchored to the AI tech story.
01:42We can spend some time on that.
01:43The EM piece of this is interesting.
01:45The risk-reward in EM, given we've got absolutely no idea what's going to happen
01:48in the Middle East any time soon.
01:50Why the EM piece of the upgrade, too?
01:53Just to start on the U.S. piece of it, you know, in this upgrade, we think, like,
01:58it's risky not to take risk in this environment.
02:01If you sit out and you wait, I mean, it's going to be bad for our clients.
02:04If we were to see some significant rally, there's a relative aspect to it,
02:07which is even if we are to see tension to continue, I think the U.S. perform relatively better than
02:12other places.
02:13So that's the upgrade to the U.S. and the AI story being very powerful still there.
02:17On the EM side of things, we think that there is – we've been positive on EM more broadly,
02:23but I think Europe is very, you know, more directly affected by this.
02:28So that's not as attractive from a DM perspective.
02:30U.S., as I mentioned, is more attractive.
02:32So that leaves EM on a relatively more attractive basis.
02:35And we see tailwinds behind – you know, we don't think the dollar will be necessarily, you know,
02:42going on a very strong – it's been strengthening.
02:44But we think this is in the context where we see a softer dollar than we've seen over the last
02:48few years.
02:49That still is a constructive backdrop for EM.
02:51And then within the EM, there are places like India and other places where we think that they are better
02:56positioned
02:56to – at the middle – at the, you know, junction of our megaforces like AI, digital finance,
03:03and the geopolitical landscape that might be easier for them to navigate.
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