Russia’s invasion of Ukraine will reshape the global economy and push inflation further, prompting companies to pull out of their global supply chains, BlackRock’s Larry Fink has warned.
“The Russian invasion of Ukraine has put an end to the globalization we have witnessed over the past three decades,” Fink wrote in his annual letter from the CEO to shareholders of BlackRock, the world’s $10 trillion asset manager .
While the immediate result was Russia’s total isolation from capital markets, Fink predicted that “corporations and governments will also look more broadly at their dependencies on other nations. This may result in companies moving more of their operations onshore or nearby, leading to faster exits from some countries.”
“A large-scale supply chain rebalancing will be inherently inflationary,” Fink wrote in a wide-ranging 10-page letter, which also addressed the impact of the invasion on the energy transition and cryptocurrencies, and updated investors on BlackRock’s businesses and the reopening of its main offices .
The letter didn’t mention a specific country that would be affected by the shifts, but Fink wrote that “Mexico, Brazil, the United States, or manufacturing hubs in Southeast Asia could benefit.” Other investors have argued that the latter group could replace China, where BlackRock launched a range of retail investment products last year.
Fink has advocated for companies in which BlackRock invests to do more to address climate change. In his letter, he predicted that the Russian invasion would affect the clean energy transition.
First, the search for alternatives to Russian oil and natural gas “will inevitably slow the world’s progress toward net zero [emissions] in the near future,” he wrote.
“In the longer term, I believe that recent events will actually accelerate the shift to greener energy sources,” he wrote, because higher fossil fuel prices will make a wider range of renewable energies financially competitive.
Though climate activists want investors to phase out fossil fuels entirely, Fink rejected that approach, as he did in his January letter to CEOs. “BlackRock remains committed to helping customers navigate the energy transition. This includes continuing to work with hydrocarbon companies,” he wrote. “To ensure the continuity of affordable energy prices during the transition, fossil fuels such as natural gas will be important as a transition fuel.”
In one of his first comments on cryptocurrencies, Fink pointed to the “potential impact of the Ukraine war on digital currency acceleration.” . . A well-designed global digital payment system can improve the processing of international transactions while reducing the risk of money laundering and corruption.”
He told investors that due to rising customer interest, BlackRock is studying digital currencies and the underlying technology.
Fink joined his shareholders in regretting a rocky start for financial markets this year, which has seen BlackRock shares fall nearly 20 percent. “I share your disappointment with the performance of our shares since the beginning of the year. But we have struggled with challenging markets before. And we’ve always managed to come out the other side better and more prepared,” he wrote.
He also noted that the company experienced “the strongest organic growth in its history” in 2021, as buoyant markets and rising interest in alternative assets and exchange-traded funds brought in $540 billion in net inflows.
Looking ahead, Fink made it clear that BlackRock wants employees back in the office but will not be among those employers who insist on a full return to pre-pandemic norms. “Working together, collaborating and personally developing our people is critical to BlackRock’s future,” he wrote. “There are certain conversations that cannot be recreated on a video call. . . We lose the space, creativity and emotional connection that comes from being together in person.”
“At the same time, we recognize that the pandemic has redefined the relationship between employers and workers. In order to retain and attract the best and most diverse talent in its class, we must maintain the flexibility to work from home, at least part of the time,” he said.
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