HS Interview | The world has changed in a fundamental way, warns Wei Li – “Companies and economic regions are more clearly divided into winners and losers”

World with the global main investment strategy of the largest investment company Blackrock With Wei Li it is customary to visit Finland once a year. Then he tells investment professionals and Blackrock's major clients about the company's views on the state of the global economy.

So this time too.

Last summer, Li was also in Finland with her husband on a cabin vacation, Wei Li reveals in an interview at Hotel Kämpsi in Helsinki.

The experience was so rewarding that they plan to come again.

“After the trip, we also built a sauna in the garden of our house.”

But what does Wei Li have to say to Finnish investors this time?

Blackrock recommends to its clients to invest in artificial intelligence and technology companies, even though the share prices of these companies rose sharply last year, says Wei Li.

“Artificial intelligence is one of the mega forces that will remain significant for a long time to come.”

Already at the beginning of last summer and even before that, Blackrock shifted the weight of investments to technology companies that benefit from artificial intelligence development.

Blackrock believed that successful technology companies would use the pricing power brought by a strong market position to raise prices so that they would survive the rise in costs and wages caused by inflation better than other companies, says Li.

That's how it happened.

Although the share prices of US technology companies have risen sharply, they are not yet unreasonably expensive because their ability to make a profit has also improved, Wei Li estimates.

For example, the valuations of the largest technology companies fell in 2022, and last year's rise was partly a return from this pit.

“Valuations are not as high. If you compare it to the improvement of the results, then the price is proportional to the result [p/e] is still lower than the average in 2020–2022.”

At the same time, the recent development of artificial intelligence has given reason to hope that the long-term success of technology companies will continue, Li adds.

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Successful stock selections will be even more important in 2024.

Last in the price rally in the fall and at the end of the year, investors' attention was largely focused on the fact that the price increase spread from technology companies to companies on the S&P list and smaller listed companies.

According to Li, the fact that the prices of technology companies in the Nasdaq index rose even faster was less noticed by the public.

“I watch this relationship between the S&P 500 and the Nasdaq closely every day,” he says.

Investors generally expect the current year to be a reasonably good stock market year.

One of the main reasons for this is that, according to the market consensus predicting the 12-month profit growth of S&P 500 companies, the results of these companies will improve by 12 percent.

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Li has an interesting observation about this broad profit improvement forecast as well.

“More than half [tuloskasvusta] can be explained by improvements in the results of technology companies.”

Successful stock selections will therefore have even greater importance in 2024, Li estimates.

World as the global chief strategist of the largest private wealth management company, Wei Li's words carry weight.

Blackrock's views easily influence the views of clients and other asset managers. They at least give support to perceptions of the direction in which the world economy seems to be going.

When HS interviewed Way Li in 2017he estimates that low interest rates cause asset values ​​to increase for a long time before the bubble bursts.

A year 2019 in the HS interview, with economic growth already slowing down, he said that many large investors have moved their investments from stocks to safe investments. In them, it was enough that the funds were even protected against inflation.

Last year, Li declared, that the 40-year exceptionally stable period in the economy has ended. The sudden movements of the economy will shake the market in a completely different way than what we are used to, he predicted.

Now after the pandemic, the various demand and supply curves are slowly beginning to be almost in order, and the rise in consumer prices, i.e. inflation, is being brought under control, says Li.

“The past year has been quite a roller coaster, and there are still disruptions caused by the pandemic.”

The increase in wages due to the labor shortage will increase inflation again this year, Li predicts.

The population The labor shortage due to aging is not only a problem in Western industrialized countries, but is already visible in Asia as well.

Looking at the situation on the scale of the global economy, Li thinks that even immigration is not a solution to the labor shortage.

“It's a zero-sum game.”

Artificial intelligence and productivity growth can reduce this conflict caused by the need for skilled labor and an aging population.

Despite this, largely due to pressure from rising wages, Blackrock estimates that the inflation rate in the United States will eventually settle at around three percent.

“The euro area will reach and settle on its two percent goal,” predicts Li.

The interest rate market however, they don't really price the increased geopolitical risks in different parts of the world, even though different crises can lead to an increase in the price of oil, for example, Li reminds.

Even stock prices are largely based on the assumption that the US Federal Reserve (Fed) will make no fewer than six corona reductions this year, he points out.

“It can only come true if inflation is completely brought under control and if the growth outlook is perhaps disappointing.”

When Wei Li talks about the economy, he basically talks about the US economy. That is how important the United States is to the entire world economy.

The market value of US listed companies covers more than 60 percent of the wealth of the world's stock exchanges, but how else could Wei Li explain the meaning of the United States to HS readers?

For example, interest rates on European bonds largely follow the development of American bonds, Li answers.

“They are moving at a more steady pace all the time.”

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“After the pandemic, a completely new system emerged.”

Similarly, the economic policy of developing countries is increasingly based on the fact that their own key interest rate changes are made only after the United States has first shown the direction.

This is what happened when the Fed gave the green light to lower interest rates in December. It immediately raised hopes in developing markets.

In Li's opinion, at the latest, when the head of the Fed Jerome Powell opened the door to interest rate cuts in his speech in December, showed the strength of the United States.

President of the European Central Bank Christine Lagarde and other central bankers tried in vain to prevent the market from baking expectations of aggressive interest rate cuts into prices, but the market had already drawn its own conclusions from Powell's speech.

“It was one man's speech,” Li reminds. “After Powell raised the matter, the Fed's board of directors could do nothing.”

in China born Wei Li has lived in London for years.

He says that he travels a lot, maybe even too much these days.

Blackrock's head office city, New York, will also be visited several times a year. In mid-January, he will visit the World Economic Forum in Davos, for example.

The skilled Wei Li has become an excellent marketing asset for Blackrock.

Where does he invest his money?

“They are largely in stocks. And in properties that I bought a long time ago,” he replies.

Li explains his large investment in stocks by the fact that he is still so young, under forty, and in a stable enough job that he can take a lot of stock risk.

Wei Li, chief strategist at Blackrock, which manages more than $9 trillion in investment assets, smiles when asked where he has invested his own funds. Picture: Liisa Takala

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Li says that his own investments focus a lot on stocks in the United States and developing countries.

Among developing countries, he mentions Mexico, Latin America and India as interesting countries.

The interview at the end, Wei Li tells an interesting historical observation about why he thinks that stock investors should stay in the market even in unstable times.

An investment made in the US stock market in 1930 has already brought an 18,000 percent return on the investment.

But if the market has been out of the ten best up days in a decade, i.e. about one day a year, there has been no return at all.

Wei Li's hands move briskly as he speaks. Picture: Liisa Takala

Second the historical selection concerns US presidential election years.

This year is one when the US President is voted on again in early November.

This year there are an extraordinary number of elections in the world. Traditionally, in an election year, the spending discipline of the public finances is relaxed, and after the elections, investors' optimism often wakes up.

In the United States, during a presidential election year, stock prices have plunged to freezing only four times between 1928 and 2023 – in 1932 at the bottom of the Depression, 1940 at the beginning of World War II, in 2000 when the Internet bubble burst, and in 2008 due to the financial crisis.

According to Li, however, this time we cannot afford to be lulled by the success of past years.

This is not an ordinary year, he warns.

“After the pandemic, a completely new system was born,” he says.

“Individual companies as well as different economic regions are now more clearly divided into winners and losers.”

Wei Li's path first took him from China to Singapore to high school and from there to Cambridge University in England. Picture: Liisa Takala

• Chief Global Investment Strategist at Blackrock. The US asset management company Blackrock manages an estimated 9,000 billion dollars in investment assets. At the end of September 2023, the amount of investment assets of Finland's entire occupational pension system was 244 billion euros.

• Twice winner of the gold medal at the Chinese Mathematical Olympiad.

• Left China for high school in Singapore and then Cambridge University to study mathematics. From there, by chance, I ended up with a summer job at the investment bank Lehman Brothers.

• Worked at asset management company Blackrock since 2010, the last three years as global chief investment strategist. Previously, e.g. Europe, Middle East and Africa chief strategist for etf products and index investing