Blackrock CEO upbeat on how the world is going
Larry Fink, the Chairman and CEO of BlackRock, the world’s largest investment manager with $3.79 trillion (Dh13.93 trillion) assets under management and around $9.9 trillion additionally in assets on its investment management platform, is surprisingly upbeat about how the world is moving, compared with 10 months ago when he last spoke to media persons.
“The world is a pretty good place when you think about what is going on in China, and in Japan. The stabilisation of Europe is far better than a year ago. The direction of the US economy is more understood today and Mexico is growing from strength to strength. There is still uncertainty around the Middle East and Gulf region but all in all you can summarise the world today versus a year ago as feeling a lot better.”
The US markets are a lot more confident than they were a year ago, in the view of Fink, and even with the current uncertainty around the political process, there is an assumption that the economy will be put right in the long term. That said, Fink sees continued concern over how the Obama administration will move on from its shortterm fix of the fiscal cliff, and uncertainty about how the administration will develop a long term economic policy.
“The solution that was designed in Washington [for the fiscal cliff] was a short term fix. Now we have the whole issue of the sequester, and the additional cuts in the deficit that must be addressed. Once that is done, we can have a sensible long term process in which we bring down our deficits. At the moment we are about a third of the way there.
“But the market place is taking that all in its stride, and accepts the notion that politics are messy. Despite all this uncertainty markets have expanded nicely in the last five months and that trend looks to continue unless the political process turns into sheer disappointment. But I spend a great deal of time in Washington talking with men and women who are governing our country, and I do not think we are going to see disappointment.
“People underestimate the positive macro economic trends. When I last spoke to Gulf News, we were very bullish in equities, and since then equities have rallied a lot. I think they will continue to rally because so many people are under-invested in equities. “People are over-invested in long duration bonds and they are not riskfree. Bonds used to be seen as a stable place to keep your money, but with such low yields on ten year treasuries today, you could lose your whole year’s coupon if interest rates rise only 17 basis points.”
“Therefore we are seeing people moving from cash into equities and higher yielding fixed income, and we are seeing greater opportunities for investment in dividend stocks that can give you three, four or five percent dividends higher interest rates plus some type of inflation protection if you are afraid of inflation.
Fink welcomes the global trend for governments to inject more money into their economies, in order to kick start growth and avoid recession.
“Everybody around the world is finding that they must jumpstart their economies to create jobs. In the past eight months, the Federal Reserve has done more quantitative easing. The new government in Japan is doing its own form of quantitative easing and the UK might start the same type of process. “There is more probability that the ending to this easing does not have to be messy. Of course, there is a possibility that our central bankers might miscalculate how fast inflation picks up and they will not be able to stop it, which would be a very bad outcome.
“But if we are able to jumpstart these economies, stimulating some inflation, and managing it, then you can’t say that it’s going to be a bad outcome. In the United States.