Last week, Russian President Vladimir Putin stated that sanctions against Moscow herald the end of an era, implying that the West’s global dominance was coming to an end. Blackrock has chimed in with their own remarks on the conflict, stating that the Ukraine crisis marked the end of globalization as we know it.
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Larry Fink, the CEO of BlackRock, which manages assets worth about half of US GDP, has forecasted that measures to penalize Russia for its aggression in Ukraine will cause globalism to collapse as decision-makers reevaluate their international liabilities.
“The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades,” Fink said on Thursday in a letter to investors. “We had already seen connectivity between nations, companies and even people strained by two years of the pandemic. It has left many communities and people feeling isolated and looking inward. I believe this has exacerbated the polarization and extremist behavior we are seeing across society today.”
As a result of the Ukraine crisis, Western countries launched a “economic war” on Moscow, including the unusual measure of prohibiting the Russian central bank from using its foreign currency reserves, according to Fink. Capital markets, financial institutions, and other corporations have went beyond their governments’ restrictions, severing relations and activities with Russia.
“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,” Fink said. As a result, he warned, businesses will shift more activities to their native countries or adjacent nations, raising costs and prices.
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The Russia-Ukraine crisis has “upended the world order” that has existed since the end of the Cold War, and BlackRock will have to adapt to “long-term structural changes,” such as deglobalization and greater inflation, according to Fink. He went on to say that central banks may have to tolerate either higher inflation – possibly exceeding the 40-year peak reached in the US last month – or lower economic activity and employment.
Fink’s opinions are keenly observed by investors since BlackRock, based in New York, manages $10 trillion in holdings, making it the world’s largest money manager. Indeed, the millionaire has so much financial clout that his thoughts can, to some extent, become self-fulfilling. He views the Ukraine situation, among other things, as hastening the growth of digital currencies and the transition away from fossil fuels.
“The ramifications of this war are not limited to Eastern Europe,” Fink said. “They are layered on top of a pandemic that has already had profound effects on political, economic and social trends. The impact will reverberate for decades to come in ways we can’t yet predict.”
Fink and Russian authorities may not concur on the Ukraine conflict (the money manager blames Russia for the crisis), but they do understand that the global order is shifting. Last week, Russian President Vladimir Putin stated that sanctions against Moscow herald the end of an era, implying that the West’s “global dominance” both politically and economically is coming to a close. “The unipolar world has come to an end,” ex-President Dmitry Medvedev said last week, echoing those remarks.