LONDON, (Reuters) –BlackRock Inc reduced its exposure European government bonds. It stated that it favors equities rather than fixed income for the next year as inflation will rise above pre-pandemic levels.

World’s most powerful asset manager claimed it was “underweight” European bond bonds. This predicted higher yields, while the current market pricing indicated that there had been no substantial change in monetary policy over several years.

“We see inflation settling above pre-Covid trends – we’re going to be living with inflation,” said Philipp Hildebrand, vice chairman of BlackRock (NYSE:) in a note to clients published on Monday.

We favor fixed income over equities as a result. However, we have reduced our risk taking due to the many possible outcomes for 2022.

Wei Li (BlackRock Global Chief Investor Strategist) said that in 2022 there will be another year of up-years for equities, and another year for bonds. She added that it was uncommon to see two consecutive years like this.

The outlook stated that stocks will only see moderate gains over the next year because of “decelerating economic growth”, central banks beginning to normalize and a possible peak in profits growth. There are also potential earnings disappointments.

BlackRock maintained that the U.S. Treasuries are “still underweight” on the bond side.

According to BlackRock’s 2022 outlook note, climate change is also part of the inflation story. It would most likely bring a series supply shocks that will continue over many decades.

According to Yu Song (Chinese economist chief at BlackRock), the future outlook for China assets was brighter than expected.

“We expect stricter regulation in China to persist but think it’s unlikely to intensify in the politically significant year of 2022 given slowing growth,” he added.