NEW YORK/LONDON, July 9 (Reuters) - The BlackRock

Investment Institute (BII) said on Tuesday that recent

parliamentary elections in Britain had made valuation of UK

equities attractive, while Japan stocks remained its favoured

equity investment play.

The British Conservative Party suffered a historic election

defeat last week with a record number of cabinet ministers

losing their seats.

"Valuation is very compelling ... and given the perceived

political stability leading to better sentiment, we think

there's a tactical opportunity for UK equities," Wei Li, global

chief investment strategist at BlackRock ( BLK ), said on Tuesday.

BII, an arm of U.S.-based investment firm BlackRock ( BLK ) that

provides proprietary investment research, said in a mid-year

outlook report that the prospect of higher-for-longer interest

rates made inflation-linked bonds attractive. On a country

level, Mexico and India should "benefit from rewiring supply

chains in the long term," BII added.

BII is bullish on U.S. stocks and artificial intelligence,

the report said.

"(Japanese equities are) our highest conviction equity view

thanks to support from the return of mild inflation,

shareholder-friendly corporate reforms and a Bank of Japan that

is cautiously normalizing policy, rather than tightening," it

said.

With regards to U.S. government debt ahead of the

presidential election, long-term debt prices are not

sufficiently reflective of the prospect of widening U.S. fiscal

deficits, prompting BlackRock's ( BLK ) preference for short- to

medium-dated Treasuries, said Li.

Both U.S. presidential election front-runners, President Joe

Biden and former President Donald Trump, are not prioritising a

reduction in government spending, which could lead to wider term

premiums, she said, referring to the compensation investors

require for holding long-term debt.

"Both of these candidates are not really talking about plans

that bring down fiscal deficits. They spend in different ways

but they're both looking to spend," she said.

"We prefer the front end of the curve, the belly of the

curve, over the long end ... because the U.S. term premium in

particular does not reflect that fiscal trajectory," she added.