Blackrock Fink: Global outlook fine but not great

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Global outlook fine but not great, says Fink
Tony Boyd
636 words
1 Apr 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Larry Fink, chief executive of the world's biggest investor BlackRock, with $US4.3 trillion ($4.6 trillion) in assets under management, is bullish about the United States economy and its sharemarket but forecasts a looming slowdown in China.

In an exclusive interview with The Australian Financial Review, Mr Fink covered a wide range of topics including bank regulation, shadow banking in China, Australia's impressive savings pool, the new Federal Reserve Board chairman Janet Yellen, emerging markets and high frequency trading.

He forecast the US sharemarket would keeping rising this year but said investors would have to get used to increased volatility in global financial markets.

"The world's fine but it's not great," he said.

"The US central bank is tapering – you have some central banks tightening right now to defend their currencies and you have some central banks such as Japan, which is continuing to do a very aggressive stimulus.

"You will continue to have a very liberal European Central Bank because Europe is not doing as well as it should.

"So because of the lack of co-ordinated central bank behaviour you are going to see some parts of the world doing better than others."

Mr Fink said we may look back on the past five years as "the best five years we will see in a long time in terms of the opportunities we had in investing."

He predicted the US market would rise this year by about 8 per cent.

"It is not going to be as easy to make money but it is going to be a positive equity market overall," he said.

Mr Fink, who is in Australia to meet staff and clients in Sydney and Melbourne, warned Australia not to fall into the trap of implementing an aggressive austerity program.

"I would argue that if there is a need for a little more fiscal stimulus for the economy I would be a little more open towards that," he said.

"I am not much worried about Australia because you have such vast savings you are able to self-finance."Cautious on China

However, he was cautious about the prospects for China, Australia's biggest export market.

"Government policies are going to be the difference between a great global world and a poor global world, and probably at the forefront of it is China," he said.

"Last November, the Chinese announced their new 10-year reforms. The first and foremost reform is going from a policy-oriented economy to a market-oriented economy. That's hard.

"We believe the Chinese government will get it right. But we also believe that maybe China will slow even more than people think because the policies they are trying to assert are difficult, and they are going to take time to implement.

"We wouldn't be surprised to see the economy slow from 7.7 per cent to 7 per cent. The world will look at that as a negative. I don't look at that as a ­negative."Aggressive US tapering urged

Mr Fink urged Federal Reserve Board chairman Janet Yellen to taper the US bond-buying program as aggressively as possible, despite the complaints from some emerging markets. "Last year the US deficit was $750 billion and the Federal Reserve was buying $1 trillion, so they were buying more than was issued, creating a bubble.

"This year if they don't aggressively taper, the US deficit is estimated to be $540 billion. So they have to be very aggressive in getting out the market."

Mr Fink said the turnaround at BlackRock Australia under local chief executive Justin Arter was necessary to reconnect with customers who had not been well served following several mergers a few years ago.


Fairfax Media Management Pty Limited

Document AFNR000020140331ea4100033

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MACRO VIEW
Hopes of more booster shots for anaemic economies

Published on Apr 07, 2014


By Fiona Chan, Senior Economics Correspondent

A SET of disappointing manufacturing data across Asia last week, coupled with a lukewarm job report from the United States last Friday, capped a tepid first quarter for the region's economies.

But markets remained cheery on expectations of a better second quarter and more government help to stimulate flagging economies.

China has already taken the lead, injecting a small shot of adrenaline into its economy last week, and more boosters could soon follow in other anaemic parts of the world.

This week, the Bank of Japan (BOJ) holds its first meeting since the country hiked its consumption and other taxes last Tuesday.

With the higher taxes likely to weigh on spending - business optimism tanked in a central bank survey released last week - investors are hoping for signs of imminent additional monetary easing.

"Some sections of the market still see the possibility of monetary easing in April," noted Nomura economists Shuichi Obata and Tomo Kinoshita last week.

But given the steady rise in Japan's inflation and the need to monitor the economy after the tax hike, they expect the BOJ to hold its fire until July.

In Europe, the central bank last week politely resisted International Monetary Fund managing director Christine Lagarde's suggestions to cut interest rates from their all-time lows.

Ms Lagarde had said that it was "necessary" for the European Central Bank (ECB) to take that move to head off the danger of deflation in the region. Inflation in the euro zone stands at just 0.5 per cent, well below the ECB's 2 per cent target.

Still, economists such as OCBC's Mr Emmanuel Ng observed a slight change in ECB chief Mario Draghi's stance that could signal a rate cut in the near future.

The ECB said it may consider economic boosts, such as negative interest rates and large-scale bond purchases in the manner of the US Federal Reserve's quantitative easing (QE) policy.

"The ECB continued to maintain its neutral stance but, in a discernible shift in tone, Draghi sent several strident reminders to the market that the ECB stood ready to act on further monetary easing, including utilising QE," said Mr Ng.

Some economists are also anticipating further stimulus measures from China, which last week announced a mini-spending package including more construction and railway projects and lower tax burdens for small firms.

"This may be (the) start of a slew of fine-turning measures," said HSBC economists Qu Hongbin and Sun Junwei.

"We think Beijing still has other options in their tool-kit, such as lowering the entry barriers in various sectors, spending or incentives for environmental protection, as well as more urban infrastructure such as subways, if needed."

The spending lift comes amid mixed signals about China's manufacturing activity last month. An official survey found that the country's factory sector edged up in March from an eight-month low, but a similar gauge by HSBC concluded that the sector declined further during the month.

"Splitting the difference, China still looks a bit wobbly, if not quite as dire as many claim," said HSBC's co-head of Asian economic research Frederic Neumann.

Manufacturing surveys across the region were also weak, he noted. "With a few exceptions, PMIs (purchasing managers' indexes) in East and West, while still above the waterline (signifying expansion), have eased back further."

But ABN Amro economist Nick Bruin said he believes that the global manufacturing sector will "pick up speed again in the coming months".

"Most evidence suggests the US economy is starting to shake off the impact of the bad weather, and we expect stronger advanced economy demand to support emerging market exports," he said.

Singapore's PMI showed that factories here slowed their expansion of output last month in line with the broad regional trend.

But economists expect the country's overall economic growth to be steady enough for the central bank to stay pat on its strong Singapore dollar stance when it meets to decide monetary policy this month.

fiochan@sph.com.sg