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Larry Fink says globalization is over — Here’s what it means for the markets

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BlackRock founder Larry Fink declared that the Russia-Ukraine war is bringing the era of globalization to an end, but investors should keep in mind that the global economy and the financial system can’t turn on a dime, analysts say.

“There is a lot of talk about countries going back to local production and the era of globalization and long overseas supply chains is over,” said Chris Rupkey, chief economist at FWDBONDS, in a note following Thursday’s U.S. data showing a fall in first-time jobless benefit claims to their lowest since 1968. “But that economic model has one gigantic stumbling block in the U.S.A. because there is no one to work the factories to produce the goods here on American soil.”

So what is Fink, one of the founders of the world’s largest investment management firm, Blackrock
BLK,
+0.37%
,
with $10 trillion under management, talking about when he talks about the end of globalization?

In his annual investor letter released on Thursday, Fink said he remains a believer in the benefits of globalization: “Access to global capital enables companies to fund growth, countries to increase economic development, and more people to experience financial well-being. But the Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades,” he wrote.

Need to Know: It’s the beginning of the end of globalization, say BlackRock’s Larry Fink and Oaktree’s Howard Marks

Sanctions imposed by the U.S., E.U. and allies have largely expelled Russia from the global financial system while numerous Western companies have left or suspended operations in the country as punishment for its invasion of Ukraine. The “economic war” shows what can be achieved when companies, supported by their stakeholders, unite in response to violence and aggression, Fink said.

“Russia’s aggression in Ukraine and its subsequent decoupling from the global economy is going to prompt companies and governments world-wide to re-evaluate their dependencies and reanalyze their manufacturing and assembly footprints —something that Covid had already spurred many to start doing,” Fink said.

See: Russia-Ukraine war could accelerate use of digital currencies, BlackRock’s Larry Fink says

Indeed, talk of such decoupling first gathered momentum as the administration of former U.S. President Donald fought a trade war with China, a trend Fink had highlighted in previous letters. If globalization is poised to unwind, some analysts say, it makes sense to look at homegrown investments, which for U.S. investors would include companies whose revenues come overwhelmingly from domestic sales and whose assets are primarily U.S.-based.

Barron’s: Globalization May Be Over. Here Are 5 Stocks That Can Benefit.

It also makes sense to expect more upward pressure on inflation as shorter supply chains raise costs.

Some expectations around deglobalization may not stand up to reality though.

After all, what happens if in a couple of years a firm’s competitor goes back to doing business with people around the world and can beat it on price? “Do you go back to the old model? It’s not an easy competitive point of view,” said Ed Keon, chief investment strategist at QMA, in a phone interview.

Competitive forces are likely to keep “at least a substantial degree of globalization going” despite near-term crosscurrents, he said.

In the short run, the simplest trade this year has been to look at areas that have seen underinvestment for years, including energy and other materials and infrastructure, he said.

“Until that is reversed or we have embraced noncarbon sources until they displace the need for carbon, it seems quite likely this commodity rally might have some legs,” Keon said, which speaks in favor of investing in commodities and commodity producers.

It’s been a wild ride for commodity markets since Russia’s Feb. 24 invasion of Ukraine, with oil benchmarks
CL.1,
-1.12%

BRN00,
-0.46%

soaring to around 14-year highs, retreating sharply, then pushing back to the upside this week. Both West Texas Intermediate crude, the U.S. benchmark, and Brent crude, the global benchmark, remain well above $100 a barrel. The energy stock sector, up 42.25% year to date, is the top gainer by far among the S&P 500 index’s 11 sectors.

U.S. stocks overall have stumbled to start 2022, but have bounced back from the lows. The S&P 500
SPX,
+0.51%

rose 1.8% over the past week, while the Dow Jones Industrial Average
DJIA,
+0.44%

eked out a 0.1% rise and the Nasdaq Composite
COMP,
-0.16%

advanced 2%. It was the second consecutive weekly gain for the major indexes.

Investors continued to shake off war-related jitters and took in stride signals from Federal Reserve officials, including Chairman Jerome Powell, who left open the door to boosting interest rates by more than 25 basis points, or a quarter percentage point, at future meetings.

The week ahead is expected to continue reflecting a tight U.S. jobs market, with ADP set to release its estimate of March private-sector job creation on Wednesday, while the Labor Department’s official jobs report for the month is due Friday.

Thursday will feature the release of the February reading of Fed’s favorite inflation indicator, the personal consumption expenditure price index. The core PCE price index rose 5.2% year over year in January for its fastest pace in 39 years.



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IMF hikes global growth forecast as inflation cools

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The IMF has revised its global economic outlook upwards.

Norberto Duarte | Afp | Getty Images

The International Monetary Fund on Monday revised upward its global growth projections for the year, but warned that higher interest rates and Russia’s invasion of Ukraine would likely still weigh on activity.

In its latest economic update, the institution said the global economy will grow 2.9% this year — which represents a 0.2 percentage point improvement from its previous forecast in October. However, it said that number would still mean a fall from an expansion of 3.4% in 2022.

It also revised its projection for 2024 down to 3.1%.

“Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity,” Pierre-Olivier Gourinchas, director of the research department at the IMF, said in a blog post.

The Fund turned more positive on the global economy due to better-than-expected domestic factors in several countries, such as the United States.

“Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe,” Gourinchas said, also noting that inflationary pressures have come down.

Global outlook is better but don't get too optimistic, IMF chief warns at Davos

In addition, China announced the reopening of its economy after strict Covid-19 lockdowns, which is expected to contribute to higher global growth. A weaker U.S. dollar has also brightened the prospects for emerging countries that hold debt in foreign currency.

However, the picture isn’t totally positive. IMF Managing Director Kristalina Georgieva warned earlier this month that the economy was not as bad as some feared, “but less bad doesn’t quite yet mean good.”

“We have to be cautious,” she said during a CNBC-moderated panel at the World Economic Forum in Davos, Switzerland.

The IMF on Monday warned of several factors that could deteriorate the outlook in the coming months. These included the fact that China’s Covid reopening could stall; inflation could remain high; Russia’s invasion of Ukraine could shake energy and food costs even further; and markets could turn sour on worse-than-expected inflation prints.

IMF calculations say that about 84% of nations will face lower headline inflation this year compared to 2022, but they still forecast an annual average rate of 6.6% in 2023 and of 4.3% in 2024.

As such, the Washington, D.C.-based institution said one of the main policy priorities is that central banks keep addressing the surge in consumer prices.

“Clear central bank communication and appropriate reactions to shifts in the data will help keep inflation expectations anchored and lessen wage and price pressures,” the IMF said in its latest report.

“Central banks’ balance sheets will need to be unwound carefully, amid market liquidity risks,” it added.



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Credit Suisse see Apple beating the Street this week for a few reasons

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Most Adani shares continue losses; founder loses $28 billion in month

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Gautam Adani, chairperson of Indian conglomerate Adani Group, at the World Congress of Accountants in Mumbai on Nov. 19, 2022. Founder Gautam Adani, the richest man in Asia and once second only to Elon Musk, fell out of the world’s top five richest to rank seventh on the Bloomberg’s Billionaire Index.

Indranil Mukherjee | Afp | Getty Images

Shares of most of Adani Group companies continued to see sharp losses for a third consecutive trading session as the company attempted to rebut short seller firm Hindenburg’s report, which accused the conglomerate of stock manipulation and an “accounting fraud scheme.”

Adani Enterprises erased earlier gains of up to 10% and last traded flat in Mumbai’s afternoon trade after the group published a lengthy response of over 400 pages to Hindenburg’s report over the weekend, saying that it will exercise its rights to “pursue remedies” to protect its investors “before all appropriate authorities.”

Adani Enterprises’ stock price remains more than 25% lower in the month to date, Refinitiv data showed. It proceeded with a secondary share sale worth $2.5 billion, which were overshadowed by a rout that wiped out a total of $48 billion as of last week’s close.

Founder Gautam Adani, the richest man in Asia and once second only to Elon Musk, fell out of the world’s top five richest to seventh place on the Bloomberg’s Billionaire Index.

His net worth fell $27.9 billion year to date, the index showed. It peaked at $150 billion on Sept. 20, 2022, before falling to to $92.7 billion as of last week’s close, according to the index.

Despite small gains seen in Adani Enterprises, other affiliates of the Adani Group continued to plunge.

‘Attack on India’

Adani Group said Hindenburg’s allegations were a “calculated attack on India, independence, integrity and quality of Indian institutions, and growth story and ambition of India,” in the response it released over the weekend.

The group’s chief financial officer Jugeshinder Singh said in an interview with CNBC-TV18, an affiliate of CNBC, that the value of Adani Enterprises has not changed “simply because” of share price volatility, adding it instead lies in its “ability to incubate new businesses.”

He added that he is confident Adani Enterprises‘ follow-on public offering will be fully subscribed, calling Hindenburg’s report “simply a lie” and the timing of the report “malicious.”

Hindenburg on Monday morning described the group’s response “bloated” and claimed it “ignores every key allegation” against the conglomerate that it raised.

“Fraud cannot be obfuscated by nationalism of a bloated response that ignores every key allegation we raised,” the short seller titled its response to Adani Group.



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