Fink says war has finished off globalisation

The Ukraine war will reshape the world economy and further drive up inflation by prompting companies to pull back from global supply chains, BlackRock chief executive Larry Fink has warned.

Russia’s invasion “has put an end to the globalisation we have experienced over the last three decades,” Fink wrote in his annual letter to shareholders of BlackRock, which oversees $10tn as the largest asset manager.

While the immediate result had been Russia’s isolation from capital markets, Fink said “companies and governments will also be looking more broadly at their dependencies on other nations.

“This may lead companies to onshore or nearshore more of their operations, resulting in a faster pullback from some countries.

“A large-scale reorientation of supply chains will inherently be inflationary.”

The remarks came in a wide-ranging 10-page letter which also addressed the effect on the energy transition and cryptocurrencies, and which updated investors on BlackRock’s business lines and the reopening of its main offices.

The letter did not mention any specific country that would be hurt, but Fink wrote that “Mexico, Brazil, the US, or manufacturing hubs in south-east Asia could stand to benefit”.

Other investors have argued that the last group could substitute for China, where BlackRock last year launched a set of retail investment products.

Fink has advocated that companies in which BlackRock invests do more to address climate change. His letter projected that the Russian invasion would affect the transition to cleaner energy.

Initially, the search for alternatives to Russian oil and natural gas “will inevitably slow the world’s progress toward net zero [emissions] in the near term”, he wrote.

“Longer-term, I believe that recent events will actually accelerate the shift toward greener sources of energy” because higher prices for fossil fuels would make a broader range of renewables competitive.

Although climate activists wanted investors to shun fossil fuels entirely, Fink rejected this approach, as he did in his January letter to chief executives.

“BlackRock remains committed to helping clients navigate the energy transition. This includes continuing to work with hydrocarbon companies.

“To ensure the continuity of affordable energy prices during the transition, fossil fuels like natural gas will be important as a transition fuel.”

In one of his first comments on cryptocurrencies, Fink drew attention to the war’s “potential impact on accelerating digital currencies . . . A global digital payment system, thoughtfully designed, can enhance the settlement of international transactions while reducing the risk of money-laundering and corruption.”

He told investors that owing to increasing client interest, BlackRock was studying digital currencies and the underlying technology.

Fink commiserated with his shareholders over a rocky start for markets this year, in which BlackRock shares are down almost 20 per cent.

He noted that the company was coming off “the strongest organic growth in its history” in 2021 when buoyant markets and rising interest in alternative assets and exchange traded funds brought $540bn of net inflows.

Looking ahead, Fink made clear that BlackRock wanted employees back in the office, although it would not insist on a complete return to pre-pandemic norms.