BlackRock's Investment Outlook
By Bob Doll & Peter Fisher

Some recent signals have suggested that the broader US economy might be nearing an inflection point. Improvements in housing starts, the trade deficit and retail sales suggest that at least some parts of the economy may be bottoming and that the pace of decline may be slowing.

This is not to say that the economy is about to recover, but it does point to a degree of stabilisation and a potential end to the severe rates of decline. At present, we believe the fourth quarter of 2008 and the first quarter of 2009 will mark the low points for economic growth.

While there remains a risk that households will want to reduce their debt burden and increase their savings, which could hold back consumption and the overall economy, there is a prospect that we will witness the start of an economic recovery by the end of the year, and that could lead into sub-par, but positive, growth in 2010.

It is difficult to predict with any accuracy exactly how and when the US economy will begin to turn around, but past experience suggests that some segments of the economy should recover before others.

Once the banking system has stabilised, we will be focused on identifying a floor for consumption spending. When personal spending has stopped dropping, it should be a sign that the broader economy is set to recover. Within the business sector, a sustained increase in durable goods orders could signal a turnaround and would be an important leading indicator. A decline in inventory levels also will be an important sign that the business sector has started to improve.

One area of the economy that we expect will lag significantly is employment. It is important to remember that the available labour force continues to grow even as the economy shrinks and as jobs disappear. As a result, unemployment will continue to rise even as the economy starts to recover. It may very well take a year or more from the time the economy bottoms for unemployment to peak.

As always, financial markets are in the business of futures forecasting, and investors in general tend to act in anticipation of events. This means that equity, fixed income and other markets will begin to price in a recovery before concrete evidence of one exists. As such, higher-risk assets (such as equities) are likely to recover before the economy as a whole.

Opportunities in Fixed Income
With the abrupt rally in Treasuries that occurred after the announcement of the Fed's asset purchase plan, the yield on the 10-year Treasury moved from over 3% to around 2.5%, but it subsequently retraced about half that gain.

Should economic news worsen and the Fed continue its aggressive policies, yields might move down to the low 2% range, but that would likely mark the bottom point. Likewise, it is hard to imagine yields breaking through 3% until clearer evidence of an economic recovery emerges.

Our investment themes in fixed income have remained largely unchanged for some time. While we are in the midst of a recession, a focus on higher-quality investments is appropriate.

Within that context, however, selective risk-taking may be rewarded. There will be winners and losers in every category of fixed income, meaning disciplined credit research will be critical.

Within this high-quality theme, select corporate bonds look attractive to us. There are companies out there that have the ability to weather the current recession and whose bonds are offering attractive yields.

Another area of the market that interests us is the government-guaranteed sector. Agency mortgages (Ginnie Mae in particular) are offering attractive yields and represent a good investment opportunity, particularly when compared to Treasuries.

Opportunities in Equities
As with our stance in fixed income markets, our investment themes have remained consistent in the equity space as well. On balance, a bias toward higher quality continues to make sense, and we retain our conviction that the most compelling values can be found in higher-quality companies that have relatively strong balance sheets, healthy levels of free cash flow and adequate financing. At the same time, however, it would be appropriate to gradually take on some lower-quality and more cyclical investments in anticipation of economic recovery.

Regarding geographic opportunities, among developed markets we continue to favour overweight positions in US stocks. Policy responses to the credit crisis have been stronger and more rapid in the United States than in other markets, and US stocks tend to have higher earnings predictability and lower volatility compared to most other markets.

Additionally, we continue to believe that the long-term case for investments in emerging markets remains intact. In particular, we favour investments in Asia ex-Japan and in Latin America, where signs of economic revitalisation are stronger.

Our views toward different market sectors follow our views on quality. We continue to prefer a more defensive stance, and believe that healthcare, with relatively good earnings prospects and strong cash flows, remains the most attractive defensive sector.

Our preferred cyclical sector is energy, an area that we believe is attractively valued. Finally, from a growth perspective, we are focused on technology, which appears to have relatively solid earnings prospects.

Looking ahead, a clear outlook for equities remains difficult to ascertain. The positive move in the stock market that has occurred since early March (when stocks sank to a new low of 667 for the S&P) appeared overdue, but it remains to be seen whether this represents the beginning of a turnaround or merely a bounce from oversold levels.

Some evidence suggests that market conditions are improving. The March rally has been broad-based and volume has been heavy, which are strong technical factors.

Additionally, lower-quality stocks have been outperforming, which usually happens when markets rebound. Nevertheless, it is important to remember that equities are still in the midst of a bottoming process and that stocks could experience another setback.

At some point, one of the bottoms we have hit in recent months will mark the final bottom for the current cycle, and our conviction is growing that the March 6 low may have been it.

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ABOUT THE CONTRIBUTORS
Bob Doll is the BlackRock Vice Chairman and Global Chief Investment Officer (Equities) and Peter Fisher, the Co-Head of BlackRock's Fixed Income Portfolio Management Group

About BlackRock
BlackRock is one of the world’s largest publicly traded investment management firms. At December 31, 2008, BlackRock’s AUM was $1.307 trillion. The firm manages assets on behalf of institutions and individuals worldwide through a variety of equity, fixed income, cash management and alternative investment products. In addition, a growing number of institutional investors use BlackRock Solutions investment system, risk management and financial advisory services. Headquartered in New York City, as of December 31, 2008, the firm has approximately 5,300 employees in 22 countries and a major presence in key global markets, including the U.S., Europe, Asia, Australia and the Middle East. For additional information, please visit the Company's website at www.blackrock.com.sg


Disclaimer
Issued by BlackRock Investment Management (Singapore) Ltd.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of April 1, 2009, and may change as subsequent conditions vary. Individual portfolio managers for BlackRock may have opinions and/or make investment decisions that, in certain respects, may not be consistent with the information contained in this report. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. Stock and bond values fluctuate in price so that the value of an investment can go down depending on market conditions. International investing involves additional 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 are typically heightened for investments in emerging markets. Investments in the natural resources industries can be significantly affected by events relating to those industries, such as variations in the commodities markets, weather, disease, embargoes, international, political and economic developments, the success of exploration projects, tax and other government regulations, as well as other factors. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. There may be less information available on the financial condition of issuers of municipal securities than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. A portion of the income from municipal securities may be taxable. Some investors may be subject to Alternative Minimum Tax (AMT). Capital gains distributions on municipal securities, if any, are taxable.

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