Breaking up
The war in Ukraine has upended the global economy. Severe sanctions have isolated Russia, and supply-chain shocks have roiled markets for food, energy and other commodities. Some of the most influential investors on Wall Street say that these disruptions — which come as the global economy was beginning to recover from the pandemic — may have permanently altered the world order.
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Larry Fink of BlackRock sees an end to globalization. In his latest letter to shareholders, the asset management giant’s co-founder and C.E.O. writes that Russia’s invasion has broken the cross-border bonds between countries, companies and people that were already strained by the pandemic:
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Russia’s aggression in Ukraine and its subsequent decoupling from the global economy is going to prompt companies and governments worldwide to re-evaluate their dependencies and re-analyze their manufacturing and assembly footprints — something that Covid had already spurred many to start doing.
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Howard Marks of Oaktree predicts a similar shift in his latest investor letter, citing the security risks of Europe’s reliance on Russian energy and the U.S. outsourcing of computer chip manufacturing:
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The recognition of these negative aspects of globalization has now caused the pendulum to swing back to local sourcing. Rather than the cheapest, easiest and greenest sources, there’ll probably be more of a premium put on the safest and surest.
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The war will have many long-term economic consequences, the two note:
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De-globalization will push inflation even higher, Fink writes, forcing central banks to choose between higher prices or lower economic activity. And Marks writes that countries whose economies benefited from outsourcing will be hurt from any reversal. That said, Fink sees countries like Brazil, Mexico and the U.S. benefiting from more local production.The turmoil could bolster virtual currencies, Fink writes, noting that the U.S. is studying the implications of a digital dollar. Previously somewhat of a skeptic of cryptocurrencies, he now writes: “A global digital payment system, thoughtfully designed, can enhance the settlement of international transactions while reducing the risk of money laundering and corruption.” (BlackRock is now weighing adding crypto and blockchain offerings to its portfolio.)The two differ on what the war means for green energy. Marks writes that countries will opt for more readily accessible sources of fuel, even if they’re not the cleanest. Fink, however, believes that shocks to oil prices and that same desire for national energy security will accelerate the adoption of clean energy. |
