BlackRock 2023 Global Outlook

FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. 2023 Global BlackRock outlook Investment Institute A new investment playbook BBIIIIMM1122U/M1222U/M--26121472617935--11/16/16

FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. The Great Moderation, the four-decade period of largely stable activity and inflation, is behind us. The new regime of greater macro and market Philipp Hildebrand Jean Boivin volatility is playing out. A recession is foretold; central banks are on Vice Chairman — Head —BlackRock course to overtighten policy as they seek to tame inflation. This keeps us BlackRock Investment Institute tactically underweight developed market (DM) equities. We expect to turn more positive on risk assets at some point in 2023 –but we are not Wei Li there yet. And when we get there, we don’t see the sustained bull markets Global Chief Investment Strategist — of the past. That’s why a new investment playbook is needed. BlackRock Investment Institute Alex Brazier We laid out in our 2022 midyear outlook This new regime calls for rethinking bonds, Deputy Head —BlackRock Investment why we had entered a new regime –and are our second theme. Higher yields are a gift to Institute seeing it play out in persistent inflation and investors who have long been starved for output volatility, central banks pushing income. And investors don’t have to go far up policy rates up to levels that damage the risk spectrum to receive it. We like short- Vivek Paul economic activity, rising bond yields and term government bonds and mortgage Head of Portfolio Research — ongoing pressure on risk assets. securities for that reason. We favor high- BlackRock Investment Institute grade credit as we see it compensating for Central bankers won’t ride to the rescue recession risks. On the other hand, we think when growth slows in this new regime, long-term government bonds won’t play their Scott Thiel contrary to what investors have come to traditional role as portfolio diversifiers due to Chief Fixed Income Strategist — expect. They are deliberately causing persistent inflation. And we see investors BlackRock Investment Institute recessions by overtightening policy to try to demanding higher compensation for holding rein in inflation. That makes recession them as central banks tighten monetary foretold. We see central banks eventually policy at a time of record debt levels. backing off from rate hikes as the economic damage becomes reality. We expect Our third theme is living with inflation. We inflation to cool but stay persistently higher see long-term drivers of the new regime such than central bank targets of 2%. as aging workforces keeping inflation above Contents What matters most, we think, is how much pre-pandemic levels. We stay overweight First words 2-3 Investment views 8-9 of the economic damage is already reflected inflation-linked bonds on both a tactical and Summary 2 8 strategic horizon as a result. Tactical in market pricing. This is why pricing the New regime plays 3 Strategic 9 damageis our first 2023 investment theme. Our bottom line: The new regime requires a out Case in point: Equity valuations don’t yet new investment playbook. It involves more New playbook 4 Regime drivers 10-12 reflect the damage ahead, in our view. We frequent portfolio changes by balancing Aging workforces 10 Themes 5-7 A new world order 11 will turn positive on equities when we think views on risk appetite with estimates of how Pricing the damage 5 12 the damage is priced or our view of market markets are pricing in economic damage. It Faster transition Rethinking bonds 6 risk sentiment changes. Yet we won’t see also calls for taking more granular views by Living with inflation 7 Private markets 13 this as a prelude to another decade-long focusing on sectors, regions and sub-asset View summary 14-15 bull market in stocks and bonds. classes, rather than on broad exposures. 2 22 22002223 mioutldyooeakr outlook BBIIIIMM1122U/M1222U/M--26121472617935--22/16/16

FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. Taming inflation would take deep recession Intro U.S. GDP and potential supply, 2017-2025 New regime 110 105 2% fall playing out dex In100 A key feature of the new regime, we Either get inflation back to 2% Large drop in GDP needed to close gap believe, is that we are in a world targets by crushing demand down to between demand and shaped by supplythat involves what the economy can comfortably 95 supply in 2023 brutal trade-offs. This regime is produce now (dotted green line in playing out and not going away, in the chart), or live with more inflation. our view. For now, they’re all in on the first 90 Repeated inflation surprises have option. So recession is foretold. 2017 2019 2021 2023 2025 sent bond yields soaring, crushing Signs of a slowdown are emerging. Trend GDP Estimate of non-inflationary GDP level equities and fixed income. Such But as the damage becomes real, we Chart takeaway:Getting inflation all the way back down to target – volatility stands in sharp contrast believe they’ll stop their hikes even the dotted green line –would require the Fed to deal a significant to the Great Moderation, 40 years though inflation won’t be on track to blow to the economy. of steady growth and inflation. get all the way down to 2%. Production constraintsare driving Some production constraints could Sources: BlackRock Investment Institute and U.S. Bureau of Economic Analysis, with data from Haver this new regime: The pandemic ease as spending normalizes. But we Analytics, November 2022. Notes: The chart shows demand in the economy, measured by real GDP (in shift in consumer spending from see three long-term trends keeping orange) and our estimate of pre-Covid trend growth (in yellow). The green dotted line shows our estimate of current production capacity, derived by how much core PCE inflation has exceeded the Federal Reserve’s 2% services to goods caused shortages production capacity constrained and inflation target. When then gauge how far activity (orange line) would have to fall to close the gap with where and bottlenecks. Aging populations cementing the new regime. First, production capacity (green dotted line), will be by the end of 2023 assuming some recovery in production led to worker shortages. This aging populations mean continued capacity. We estimate a 2% drop in GDP between Q3 2022 and Q3 2023 (orange dotted line). Forward- means DMs can’t produce as much worker shortages in many major looking estimates may not come to pass. as before without creating inflation economies. Second, persistent pressure. That’s why inflation is so geopolitical tensions are rewiring Production constraints are fueling high now, even though activity is globalization and supply chains. below its pre-Covid trend. Third, the transition to net-zero inflation and macro volatility. Central Central bank policy rates are not carbon emissions is causing energy banks cannot solve these constraints. the tool to resolve production supply and demand mismatches. constraints; they can only influence See pages 11-13. That leaves them raising rates and demand in their economies. That Our bottom line: What worked in the engineering recessions to fight inflation. leaves them with a brutal trade-off. past won’t work now. 3 2023 outlook 3 3 2022 midyear outlook BBIIIIMM1122U/M1222U/M--26121472617935--33/16/16

FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. Tactical views Our new playbook We are here Enough damage in the price? No Yes Navigating markets in 2023 will Risk off, damage not priced Risk off, damage priced require more frequent portfolio changes. We see two assessments Equities Equities that determine tactical portfolio outcomes: 1) our assessment of market risk sentiment, and 2) our Off Credit Credit view of the economic damage reflected in market pricing. The matrix shows how we plan to Short term Short term change our views and turn more timent Govt. Govt. positive as markets play out in the n bonds bonds new regime. A few key conclusions: Long term Long term se • We are already at our most k defensive stance. Other options ris Risk on, damage not priced Risk on, damage priced are about turning more positive, especially on equities. et rk Equities Equities • We are underweight nominal long-term government bonds in Ma each scenario in this new regime. Credit Credit This is our strongest conviction in On any scenario. • We can turn positive in different Short term Short term ways: either via our assessment of Govt. Govt. market risk sentiment or our view bonds bonds on how much damage is in the Long term Long term price. Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Sources: Blackrock Investment Institute, November 2022. Notes: The boxes in this Tactical view stylized matrix show how our tactical views on broad asset classes would switch if we were to change our assessment of market risk sentiment or assessment of how much economic damage is priced in. The potential view changes are from a U.S. dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security. Underweight Overweight 44 2023 outlook 4 2022 midyear outlook BBIIIIMM1122U/M1222U/M--26121472617935--44/16/16

FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. Damage already clear U.S. new home sales during policy rate tightening cycles, 1972-2022 Theme 1 Pricing the 25% esal 0% damage se omh ew n-25% Recession is foretold as central Our approach to tactical investment in 2022 1972 banks race to try to tame inflation. views is driven by our view of market 1980 1977 It’s the opposite of past recessions: participants’ risk appetite – which is ange Loose policy is not on the way to based on the uncertainty of the Ch-50% help support risk assets, in our macro environment and other inputs 2004 view. That’s why the old playbook of –and by our assessment of what simply “buying the dip” doesn’t damage is in the price, especially -75% apply in this regime of sharper equity earningsexpectations and 0 12 24 36 48 trade-offs and greater macro valuations. Months volatility. The new playbook calls We expect them to stop hiking and for a continuous reassessment of activity to stabilize in 2023. We find Chart takeaway: The slide in housing sales this year is already how much of the economic steeper than past mega Fed hiking cycles, such as in the 1970s and damage being generated by central that earnings expectations don’t yet banks is in the price. price in even a mild recession. For early 1980s –as well as the unwind of the mid-2000s U.S. housing that reason, we stay underweight boom. That damage is building. In the DM equities on a tactical horizon for U.S., it’s most evident in rate- now. Source: BlackRock Investment Institute and U.S. Census Bureau, with data from Refinitiv Datastream, sensitive sectors. Surging November 2022. Notes: The chart shows how quickly in months sales of new family houses changed during mortgage rates have cratered sales Yet we stand ready to turn more policy rate tightening cycles between 1972 and 2022. The colored, labeledlines highlight 2022 and the of new homes. See the chart. We positive as valuations get closer to years when housing sales fell most quickly. also see other warning signs, such reflecting the economic damage –as as deteriorating CEO confidence, opposed to risk assets just responding to hopes of a soft delayed capital spending plans and We don’t think equities are fully priced consumers depleting savings. In landing. It’s not just about pricing for recession. But we stand ready to turn Europe, the hit to incomes from the the damage: We could see markets energy shock is amplified by look through the damage and positivevia our assessment of the tightening financial conditions. market risk sentiment improve in a way that would prod us to dial up our market’s risk sentiment or how much The ultimate economic damage risk appetite. But we are not there economic damage is in the price. depends on how far central banks yet. go to get inflation down. 55 2023 outlook 5 2022 midyear outlook BBIIIIMM1122U/M1222U/M--26121472617935--55/16/16

FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. Bonds and stocks can go down at same time Theme 2 Correlation of U.S. equity and government bond returns 75% Rethinking 50% on25% bonds elati0% ror Fixed income finally offers The negative correlation between C-25% “income” after yields surged stock and bond returns has already globally. This has boosted the flipped, as the chart shows, meaning -50% allure of bonds after investors were they can both go down at the same starved for yield for years. We take time. Why? Central banks are -75% a granular investment approach to unlikely to come to the rescue with 1960 1970 1980 1990 2000 2010 2020 capitalize on this, rather than rapid rate cuts in recessions they taking broad, aggregate exposures. engineered to bring down inflation Chart takeaway: A cornerstone of portfolio construction in recent The case for investment-grade to policy targets. If anything, policy rates may stay higher for longer than decades was that bond prices would go up when stocks sold off. We credit has brightened, in our view, the market is expecting. think this correlation has broken down in the new regime. and we raise our overweight tactically and strategically. We Investors also will increasingly ask think it can hold up in a recession, for more compensation to hold long- with companies having fortified term government bonds –or term their balance sheets by refinancing premium –amid high debt levels, debt at lower yields. Agency rising supply and higher inflation. mortgage-backed securities –a Central banks are shrinking their new tactical overweight –can also bond holdings and Japan may stop Sources: BlackRock Investment Institute, with data from Refinitiv Datastream, November 2022. Notes: The chart play a diversified income role. purchases, while governments are shows the correlation of daily U.S. 10-year Treasury and S&P 500 returns over a rolling one-year period. Short-term government debt also still running deficits. That means the looks attractive at current yields, private sector needs to absorb more and we now break out this category bonds. And so-called bond vigilantes The lure of fixed income is strong as into a separate tactical view. are back, as seen when market surging yields mean bonds finally offer In the old playbook, long-term forces sparked a yield surge to income. Yet long-dated bonds face government bonds would be part of punish profligate UK policies. the package as they historically As a result, we remain underweight challenges, we believe, making us prefer have shielded portfolios from long-term government bonds in short-term bonds and high-grade credit. recession. Not this time, we think. tactical and strategic portfolios. 66 2023 outlook 6 2022 midyear outlook BBIIIIMM1122U/M1222U/M--26121472617935--66/16/16

Persistent inflation FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. Wishful thinking on inflation Theme 3 U.S. core CPI inflation, forecasts and breakeven rates, 2020-2025 Living with 6 )% I ( 4 inflation CP e or High inflation has sparked cost-of- We stay overweight inflation-linked C 2 living crises, putting pressure on bonds and like real assets. The old central banks to tame inflation – playbook principle that recession whatever it takes. Yet there has drives below-target inflation and been little debateabout the looser monetary policy is gone. 0 damage to growth and jobs. Beyond Covid-related supply 2020 2021 2022 2023 2024 2025 We think the “politics of inflation” disruptions, we see three long-term Reported U.S. core CPI Economist median forecasts narrative is on the cusp of constraints keeping the new regime Current 5-year breakeven changing. The cycle of outsized in place and inflation above pre- rate hikes will stop without inflation pandemic levels: aging populations, Chart takeaway: Consensus forecasts have kept underestimating being back on track to return fully geopolitical fragmentation and the to 2% targets, in our view. As the transition to a lower-carbon world. how high inflation would go –and at first overestimated how quickly damage becomes clear, the it would return closer to pre-pandemic levels. We think inflation will Our strategic views have reflected the be persistently higher, unlike market pricing. “politics of recession” will take over. new regime, with an overweight to Plus, central banks may be forced inflation-protected bonds for a few to stop tightening to prevent years now. Market expectations and Sources: BlackRock Investment Institute, with data from Refinitiv Datastream, November 2022. Note: The financial cracks from becoming graylines show consensus economist projections of CPI inflation polled by Reuters. The yellow dot shows floodgates, as seen in the UK when economist forecasts have only current market implied five-year-ahead inflation expectations. Forward looking estimates may not come to investors took fright of fiscal recently started to appreciate that pass. stimulus plans. Result? Even with a inflation will be more persistent. See recession coming, we think we are the graylines in the chart. We think going to be living with inflation. the old playbook means markets We see central banks pausing rate hike underappreciate inflation. See the campaigns once the damage becomes We do see inflation cooling as yellow dot. The market’s wishful spending patterns normalize and thinking on inflation is why we have a clearer. Long-term drivers of the new energy prices relent – but we see it high conviction, maximum regime will keep inflation persistently persisting above policy targets in overweight to inflation-linked bonds coming years. More volatile and in strategic portfolios and maintain a higher, in our view. persistent inflation is not yet priced tactical overweight no matter how the in by markets, we think. new regime plays out. 7 2023 outlook 7 7 2022 midyear outlook BBIIIIMM1122U/M1222U/M--26121472617935--77/16/16

FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. Short over long Tactical views U.S. Treasury yields, 2000-2022 7% A new playbook 6% 5% Our 2023 playbook is ready to In equities, we believe recession isn’t d4% quickly adjust depending on how fully reflected in corporate earnings Yiel markets price economic damage expectations or valuations –and we 3% and our risk stance evolves. disagree with market assumptions We prefer short-term government that central banks will eventually 2% bonds for income: The jump in turn supportive with rate cuts. We yields reduces the need to take risk look to lean into sectoral 1% by seeking yield further out the opportunities from structural curve. U.S. two-year Treasury yields transitions –such as healthcare 0% have soared above 10-year yields. amid aging populations –as a way 2000 2005 2010 2015 2020 See the chart. We break out short- to add granularity even as we stay overall underweight.Among 10-year Two-year term Treasuries as a neutral. cyclicals, we prefer energy and We add to our overweight to financials. We see energy sector Chart takeaway: We see long-term yields rising further as term investment grade credit. Higher earnings easing from historically premium returns. Yet we expect less room for short-term yields to yields and strong balance sheets elevated levels yet holding up amid climb given the limited scope we see for a further jump in expected suggest to us investment grade tight energy supply. Higher interest policy rates. credit may be better placed than rates bode well for bank profitability. equities to weather recessions. We like healthcare given appealing Past performance is not a reliable indicator of current or future results. Source: BlackRock valuations and likely cashflow Investment Institute, with data from Refinitiv Datastream, November 2022. Notes: The chart We like U.S. agency mortgage- resilience during downturns. shows U.S. 10-year and two-year Treasury yields. backed securities (MBS) for their higher income and because they offer some credit protection via the government ownership of their A bottom-up look at what our issuers. And our expectation for companies are telling us is We expect views to change more persistent inflation relative to probably the best lens we have frequently than in the past. Our stance market pricing keeps us overweight inflation-linked bonds. into the future.” heading into 2023 is broadly risk-off, Long-term government bonds Carrie King with a preference for income over remain challenged as we have Global Deputy Chief described, so we stay underweight. Investment Officer, equities and long-term bonds. Blackrock Fundamental Equities 88 2023 outlook 8 2022 midyear outlook BBIIIIMM1122U/M1222U/M--26121472617935--88/16/16

FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. Asset mix matters more in new regime Strategic views Estimated returns in new regime vs. Great Moderation 1.0% A new strategic n 0.5% eturr approach ated 0.0% mti The Great Moderation allowed for Our strategic views stay modestly Es-0.5% relatively stable strategic overweight DM equities as we portfolios. That won’t work in the estimate the overall return of stocks -1.0% new regime: We think they will need will be greater than fixed-income 40/60 equity-bond 80/20 equity-bond to be more nimble. assets over the coming decade. Staying invested in stocks is one way New regime Great Moderation We don’t see a return to conditions to get more granular with structural that will sustain a joint bull market trends impacting sectors. Chart takeaway: The cost of getting the asset mix wrong is likely in stocks and bonds of the kind we to be much higher in the new regime –as much as four times experienced in the prior decade. We stay overweight inflation-linked versus the Great Moderation –by our estimates. The asset mix has always been bonds and underweight nominal DM For illustrative purposes only. These do not represent actual portfolios and do not constitute investment important, yet our analysis posits government bonds. Within advice. Source: BlackRock Investment Institute, with data from Refinitiv Datastream and Morningstar, that getting the mix wrong could be government bonds, we like short November 2022. Notes: The chart illustrates the contrast between estimated average annual relative as much as four times as costly as maturities to harvest yield for performance of two hypothetical portfolios against a 60-40 global equity-global bond portfolio over the versus the Great Moderation. See income and avoid interest rate risk. coming decade where we see a regime of higher macro and market volatility (orange) and estimated performance over the Great Moderation era (1990-2019) of stable growth and inflation (yellow bars). We the difference between the orange Within fixed income, we prefer to show hypothetical performance of portfolios comprising a 40%-global equity-60% global bond split and an bar and yellow markers on the take risk in credit – and we prefer 80% global equity-20% global bond mix. Index proxies: MSCI AC World for equities and the Bloomberg chart. Zero or even positive public credit to private. Global Aggregate Index for bonds. An inherent limitation of hypothetical results is that allocation decisions correlation between the returns of reflected in the performance record were not made under actual market conditions. They cannot completely account for the impact of financial risk in actual portfolio management. Indexes are unmanaged and do not stocks and bonds means it will take account for fees. It is not possible to invest directly in an index. higher portfolio volatility to achieve similar levels of return as before. It’s undeniable the new regime Our strategic views are positioned for We see private markets as a core requires a new approach to holding for institutional investors. portfolios. The strategic asset the new regime. We think even strategic mix will matter more.” The asset class isn’t immune to portfolios need to be more dynamic – macro volatility and we are broadly Simona Paravani- and getting the asset mix wrong can be underweight as we think valuations Mellinghoff could fall, suggesting better Global CIO of Solutions, even more costly. opportunities in coming years than BlackRock Multi-Asset now. See more on page 13. Strategies & Solutions 99 2023 outlook 9 2022 midyear outlook BBIIIIMM1122U/M1222U/M--26121472617935--99/16/16

FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. A workforce not recovered Regime drivers Contribution of aging to U.S. labor force participation rate drop, 2008-2022 A workforce not recovered Aging populations are negative for economic growth. Production ontriC 66 0 capacity will grow less quickly in the future as populations age and Aging workforces younger generations fail to replace them. -1 buti on We have laid out three long-term Some of that drop in the workforce (%) of drivers of production constraints in has now unwound. But the yellow 64 -2 agi the new regime. The first is aging line shows that the part not made up ate r g n populations. The effects are long in is almost entirely down to aging – on -3 (per the making but are becoming more the increasing share of the cipati centage binding now. population that is of retirement age arti62 -4 Why? Aging populations mean –rather than pandemic-specific P shrinking workforces. An ever- effects. That’s why we don’t expect poi increasing share of the U.S. an improvement in the participation -5 tsn population is aged 65 or older rate from here, and so no material ) when most leave the workforce. easing of the worker shortage that is 60 -6 This is one key reason the supply of contributing to inflation. 2008 2010 2012 2014 2016 2018 2020 2022 U.S. labor is currently struggling to Aging is bad news for future Participation rate Contribution of aging (right) keep up with demand for labor. economic growth, too. The available Just like students and stay-at- workforce will expand much more Chart takeaway: The labor force participation rate fell dramatically slowly in coming years than it has in in the pandemic as the economy shut down. Many people who left home parents, retirees are “outside the past. Economies won’t be able to the workforce haven’t come back –and won’t. the labor force.” That’s mainly why the share of the adult population produce as much. And we don’t think aging populations consume Sources: BlackRock Investment Institute, U.S. Bureau of LaborStatistics, October 2022. Notes: The orange line that’s inside the labor force – substantially less either, particularly shows the U.S. laborforce participation rate, defined as the share of the adult population (aged 16 and over) meaning in work or looking for when you factor in healthcare that is in work or actively looking for work. The yellow line shows how much the aging population has work –is still well below where it contributed to the decline in the participation rate since 2008. It is calculated by fixing participation rates for was when the pandemic began. demand. That means continued each age group and changing the weights as observed in the population data over the chart sample period. That share is also referred to as the inflation pressure, as reduced participation rate. See the orange production capacity struggles to line on the chart. keep up with demand. We also see Aging populations are negative for rising government spending on care economic growth. Production capacity The initial sharp drop was driven by for the elderly adding to debt. Covid shutdowns: Many who lost Within equities, we like healthcare as will grow less quickly in the future as an their job didn’t look for another one a sector developing medicine and ever-larger share of the population is right away given healthcare worries equipment to help meet aging or care-giving responsibilities. population needs. past retirement age and not working. 1010 10 2022 midyear outlook 2023 Outlook BBIIIIMM1122U/M1222U/M--26121472617935--1010/16/16

FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. Geopolitical risk grabs market attention Regime drivers BlackRock Geopolitical Risk Indicator (BGRI), 2018-2022 2.5 A new world order 2 Russia 1.5 WHO declares invasionof We’ve entered into a new world China’s recent party congress was a COVID-19 a global Ukraine order. This is, in our view, the most pivotal event, both politically and e pandemic fraught global environment since economically, in our view. China Scor1 World War Two –a full break from looks set to de-emphasize economic RI the post-Cold War era. We see growth as it pursues self-sufficiency BG0.5 geopolitical cooperation and in energy, food and technology. We globalization evolving into a see slower growth compounded by 0 U.S. fragmented world with competing the effects of an aging population presidential blocs. That comes at the cost of over time. election economic efficiency. Sourcing -0.5 more locally may be costlier for Geopolitical fragmentation is likely firms, and we could also see fresh to foster a permanent risk premium -1 mismatches in supply and demand across asset classes, rather than 2018 2019 2020 2021 2022 as resources are reallocated. have only a fleeting effect on markets as in the past. Market Chart takeaway: We have seen a surge in market interest in A prime example is the response to attention is likely to stay fixated on geopolitical risk in recent months, highlighting how fraught the Russia’s invasion of Ukraine. geopolitical risks. See the chart. current environment is. Western sanctions have triggered a All this will likely contribute to the pursuit of economic self- Forward-looking estimates may not come to pass. Source: BlackRock Investment Institute. October 2022. The sufficiency. Energy security is now new regime of greater macro and BlackRock Geopolitical Risk Indicator (BGRI) tracks the relative frequency of brokerage reports (via Refinitiv) and market volatility – and persistently financial news stories (Dow Jones News) associated with specific geopolitical risks. We adjust for whether the a priority: As Europe weans itself higher inflation. sentiment in the text of articles is positive or negative, and then assign a score. This score reflects the level of market attention to each risk versus a five-year history. We use a shorter historical window for our COVID risk due to its off Russian oil and gas, we’ve seen energy shortages and higher limited age. We assign a heavier weight to brokerage reports than other media sources since we want to measure the prices. In the U.S., we see a push to market's attention to any particular risk, not the public’s. favor trading partners when sourcing the metals and materials We’re in a new world order of needed in the net-zero transition. geopolitical fragmentation, a This is the most fraught geopolitical full break with the post-Cold environment since WW II, in our view. Strategic competition between the War era.” The world is splitting up into competing U.S. and China has intensified. A tough stance toward China has Tom Donilon blocs that pursue self-reliance. bipartisan support in Washington. Chairman, BlackRock Investment Institute The U.S is trying to restrict China’s access to high-end technology. 11 2023 outlook 11 11 2022 midyear outlook BBIIIIMM1122U/M1222U/M--26121472617935--1111/16/16

FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. Policy helping accelerate the transition Regime drivers Total annual green investment, past and planned, 2015-2030 2.5 Faster transition 2 no We track the transition to net-zero We see it cutting clean technology lli carbon emissions likewe track any costs and spurring domestic r tri1.5 other driver of investment risks and manufacturing. lla opportunities, such as monetary We see opportunities in transition- do policy. We take a view on how it is S. 1 likely to play out, not how it should ready investments. Infrastructure is U. play out. We assess its implications one way to play into that. See page for financial risks and returns. 13. Yet the transition is set to add to 0.5 production constraints, in our view. Our researchsuggests the global It involves a huge reallocation of transition could accelerate, resources. Oil and gas will still be 0 boosted by significant climate neededto meet future energy 2015 2016 2017 2018 2019 2020 2021 2030 policy action, by technological demand under any plausible progress reducing the cost of transition. If high-carbon production Developed economies China Emerging economies renewable energy and by shifting falls faster than low-carbon societal preferences as physical alternatives are phased in, shortages Chart takeaway: Global investment in the net-zero transition is damage from climate change –and could result, driving up prices and set to step up notably in coming years – largely thanks to key its costs – become more evident. disrupting economic activity. The policy action. Europe has intensified its efforts to faster the transition, the more out of build clean energy infrastructure as sync the handoff could be – it seeks to wean itself off Russian meaning more volatile inflation and Source: BlackRock Investment Institute and International Energy Agency (IEA), November 2022. Notes: The energy. The clearest example of economic activity. chart shows IEA estimates of past and planned annual green investment, in trillions of U.S. dollars. Forward- looking estimates may not come to pass. that is the European Commission’s RePowerEUPlan. Further impetus is likely to come from higher We find good opportunities by traditional energy prices, which are getting ahead of where the We track the transition to net-zero exacerbatingthe cost-of-living green investments are going.” carbon emissions as we track any other crisis and have shifted the driver of investment risks and economics decisively in favor of cleaner energy sources. In the U.S., Hannah Johnson opportunities. the Inflation Reduction Act is Portfolio Manager, Natural poised to unleash enormous Resources, BlackRock investment. Fundamental Equity 12 2023 outlook 12 12 2022 midyear outlook BBIIIIMM1122U/M1222U/M--26121472617935--1212/16/16

FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. Investment gap Private markets Infrastructure investment, 2007-2040 5 Cumulative The long view on $95t 4 onilli $80t infrastructure tr arl3 In private markets, valuations have The U.S. Inflation Reduction Act S.dol not caught up with the public alone earmarks nearly $400 billion U. market selloff, reducing their of investment and incentives in 2 relative appeal. We are sustainable infrastructure and underweight private markets in our supply chains. strategic views, particularly We believe infrastructure can help 1 segments such as private equity diversify returns and provide stable 2007 2017 2027 2037 that have seen heavy inflows. But long-term cashflows –even with we think private markets – a risks such as governments imposing Current pace Projected need complex asset class not suitable artificial price caps amid political for all investors – should be a pressure. Infrastructure earnings are Chart takeaway: Structural trends –the reshaping global energy larger allocation than what we see often less tied to economic cycles supply, digitalization and decarbonization – entail a sizeable step- most qualified investors hold. than corporate assets. Contracts can up in the pace of infrastructure investments. We see some opportunities in be long-term and span decades. And Sources: BlackRock Investment Institute and World Bank, 2017. Notes: The chart shows infrastructure. From roads to infrastructure assets can help hedge estimated infrastructure investment for 50 countries through 2040. The yellow line shows airports and energy infrastructure, against inflation, with fixed costs investment needed annually. The orange line shows investment trends assuming countries invest these assets are essential to and prices linked to inflation. in line with current trends, according to the World Bank. The cumulative total of $95 trillion is for industry and households alike. investment needed vs. $80 trillion in current trends. Forward looking estimates may not come to Infrastructure has the potential to pass. benefit from increased demand for capital over the long term, powered Asset selection is vital, in our by structural trends such as the view, given the high dispersion Private markets are not immune to energy crunch and digitalization. of performance even within macro volatility. Yet for strategic The chart shows World Bank data the infrastructure asset class.” investors, asset classes such as pointing to a gap of about $15 Anne Valentine trillion between existing Andrews infrastructure could provide a way to investments and what’s needed to Global Head, BlackRock play into structural trends. meet global infrastructure demand Alternatives, Infrastructure over coming decades. and Real Estate 1313 2023 outlook 13 2022 midyear outlook BBIIIIMM1122U/M1222U/M--26121472617935--1313/16/16

FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. Directional views Directional views Strategic (long-term) and tactical (6-12 month) views on broad asset classes, November 2022 Asset Strategic view Tactical view We are overweight equities in our strategic views Getting as we estimate the overall return of stocks will be greater than fixed-income assets over the coming decade. Valuations on a long-horizon do Equities not appear stretched to us. Tactically, we’re granular underweight DM stocks as central banks look set to overtighten policy – we see recessions looming. Corporate earnings expectations have Our new investment playbook –both strategic and yet to fully reflect even a modest recession. tactical – calls for greater granularity to capture Strategically, we add to our overweight to global opportunities arising from greater dispersion and investment grade credit on attractive valuations volatility we anticipate in coming years. and income potential given higher yields. We turn neutral high yield as we see the asset class as Take equities. We are tactically underweight DM equities. Credit more vulnerable to recession risks. Tactically, We break this down as an underweight in the U.S., Europe we’re also overweight investment grade and and UK and a neutral on Japan. But we take it a step neutral high yield. We prefer to be up in quality. further via sectoral preferences that we think will be key We cut EM debt to neutral after its strong run. We see better opportunities for income in DMs. in the new regime. We like energy, financials and The underweight in our strategic view on healthcare over staples, utilities and consumer government bonds reflects a big spread: max discretionary. On a strategic horizon, we are overweight underweight nominal, max overweight inflation- equities with a preference for DM. We think DM equities linked and an underweight on Chinese bonds. We are one way to get more granular and benefit from think markets are underappreciating the Govt persistence of high inflation and the implications structural trends. We believe DM equity indexes are Bonds for investors demanding a higher term premium. better positioned for the net-zero transition, for instance, Tactically, we are underweight long-dated DM with heavier weights in lower carbon-intensive sectors government bonds as we see term premium such as tech and healthcare. driving yields higher, yet we are neutral short- dated government bonds as we see a likely peak In fixed income, the return of income and carry has in pricing of policy rates. The high yields offer relatively attractive income opportunities. boosted the allure of certain bonds, especially short term. We’re underweight private growth assets and We don’t think leaning into broad indexes or asset neutral on private credit, from a starting allocation blocks is the correct approach. We stay allocation that is much larger than what most underweight long-term nominal bonds as we see term qualified investors hold. Private assets are not premium returning due to persistent inflation, high debt Private immune to higher macro and market volatility or loads and thinning market liquidity. For those reasons, Markets higher rates, and public market selloffs have reduced their relative appeal. Private allocations they won’t play the same safe-haven role as in the old are long-term commitments, however, and we see playbook. These factors matter less for short-term bonds, opportunities as assets reprice over time. Private in our view. We also have a high conviction overweight to markets are a complex asset class not suitable investment grade credit –relative to a neutral on high for all investors. yield – and we still like inflation-linked over nominal Underweight Neutral Overweight nPrevious view bonds in both tactical and strategic views. Note: Views are from a U.S. dollar perspective, November 2022. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied 14 14 2022 midyear outlook 14 2023 outlook upon by the reader as research or investment advice regarding any particular funds, strategy or security. BBIIIIMM1122U/M1222U/M--26121472617935--1414/16/16

FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, HONGKONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS IN OTHER PERMITTED COUNTRIES. Tactical granular views Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, November 2022 Equities View Commentary Fixed View Commentary income We are underweight. Neither earnings expectations Long U.S. We are underweight. We see long-term yields moving up Treasuries further as investors demand a greater term premium. Developed nor valuations fully reflect the coming recession. markets We prefer to take a sectoral approach – and prefer Short U.S. We are neutral. We remain invested in the front end due to energy, financials and healthcare. Treasuries attractive income potential. Global We are overweight. We see breakeven inflation rates We are underweight. The Fed is set to raise rates inflation- underpricing the persistent inflation we expect. United States into restrictive territory. Earnings downgrades are linked bonds starting, but don’t yet reflect the coming recession. European We turn underweight the long end. We expect a return of government term premium to push long-term yields up. We see higher bonds inflation persisting and sharp rate hikes as a risk to We are underweight. The energy price shock and peripheral spreads. Europe policy tightening raise stagflation risks. UK gilts We are underweight. Perceptions of fiscal credibility have not fully recovered. We prefer short-dated gilts for income. We are underweight. We find valuations expensive UK after the strong relative performance versus other China govt We are neutral. Policymakers have been slow to loosen DM markets thanks to energy sector exposure. bonds policy to offset the slowdown, and they are less attractive than DM bonds. We are neutral. We like still-easy monetary policy We add to our overweight. High-quality corporates’ strong Japan and increasing dividend payouts. Slowing global Global IG balance sheets imply IG credit could weather a recession growth is a risk. credit better than stocks. We are neutral. Activity is restarting, but we see U.S. agency We are overweight. We see the asset class as a high-quality China China on the path to lower growth. Tighter state MBS exposure within a diversified bond allocation. Soaring U.S. control of the economy makes Chinese assets mortgage rates have boosted potential income. riskier, in our view. Global high We are neutral. We prefer up-in-quality credit exposures We are neutral. Slowing global growth will weigh on yield amid a worsening macro backdrop. Emerging markets EMs. Within the asset classes, we lean toward commodity exporters over importers. EM hard We are neutral. We see support from higher commodities currency prices yet it is vulnerable to rising U.S. yields. We are neutral. China’s near-term cyclical rebound Asia ex-Japan is a positive, yet we don’t see valuations compelling EM We cut EM debt to neutral after its strong run. We see enough to turn overweight. local currency better opportunities for income in DMs. Underweight Neutral Overweight nPrevious view Asia fixed We are neutral amid a worsening macro outlook. We don’t income find valuations compelling enough yet to turn more positive on the asset class. Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a U.S. dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security. 15 15 2022 midyear outlook 15 2023 outlook BBIIIIMM1122U/M1222U/M--26121472617935--1515/16/16

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