The war between Russia and Ukraine has heralded the end of globalization, as the conflict has upended the current world order that has been in place since the Cold War and will have lasting global economic consequences, warned BlackRock CEO and Chairman Larry Fink in a letter to shareholders on Thursday.
Some of Wall Street’s biggest investors warn that there could be a permanent shift in the world … [+]
Seth Wenig/ASSOCIATED PRESS
“The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades,” the CEO and chairman of the world’s largest asset manager, which oversees $10 trillion, said on Thursday.
Fink’s letter comes a month into Russia’s invasion of Ukraine, as the United States and Western allies have banded together with heavy sanctions to launch an “economic war” on Russia that has decoupled the nation from the global economy.
Not only has the conflict upended the world order that has been in place since the end of the Cold War in the 1990s, but it has also “exacerbated the polarization and extremist behavior we are seeing across society today,” the BlackRock chairman said.
Russia’s invasion of Ukraine has officially broken the cross-border bonds between countries that were already strained by the coronavirus pandemic, Fink notes, as companies and governments worldwide will now be forced to further “reevaluate their dependencies and reanalyze their manufacturing and assembly footprints.”
The war will have many long-term economic consequences, Fink warns, as de-globalization pushes inflation even higher, leaving central banks with a tough choice between higher prices or lower economic activity.
While he has previously been skeptical about cryptocurrencies, Fink wrote that the havoc caused by Russia’s invasion could boost virtual currencies: “A global digital payment system, thoughtfully designed, can enhance the settlement of international transactions while reducing the risk of money laundering and corruption.”
“The world is undergoing a transformation: Russia’s brutal attack on Ukraine has upended the world order that had been in place since the end of the Cold War, more than 30 years ago,” Fink wrote in his letter to shareholders. “The magnitude of Russia’s actions will play out for decades to come and mark a turning point in the world order of geopolitics, macro-economic trends and capital markets.”
Another influential Wall Street investor, Howard Marks of Oaktree Capital, echoed many similar concerns in his own letter to shareholders on Wednesday. As Russia is cut off from the global economy, Marks warns that further sanctions are “complicated enormously” by Europe’s heavy dependence on Russian energy and the United States’ need to outsource computer chip manufacturing. These negative aspects of globalization have now “caused the pendulum to swing back to local sourcing,” Marks noted.
The war between Russia and Ukraine has had a big impact on the global economy, especially as supply-chain shocks have sent food, energy and other commodities prices skyrocketing. Markets have been dragged lower so far this year amid ongoing uncertainty over the conflict, with the S&P 500 falling roughly 7% in 2022, while the Dow is down nearly 6% and the tech-heavy Nasdaq Composite 12%. Investors face renewed inflation fears, even as the Federal Reserve prepares to more aggressively raise interest rates, thanks to supply disruptions from the conflict, which have sent oil and gas prices spiking.
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