There’s plenty of doom and gloom about the global economy right now. But Blackrock’s (NYSE:BLK)CEO Larry Fink seems to have spotted a silver lining in the midst of the dark clouds. “I’m more optimistic than ever,” he told CNBC’s Jim Cramer in a recent interview.
With $9 trillion in assets under management and one of the most popular index funds in its arsenal, Blackrock has unique insight into the state of the economy. This is why optimism from the world’s biggest asset manager is noteworthy. “We have a better texture on the market through our ETF platform and global network,” Fink says.
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Fink acknowledges the headwinds, specifically related to geopolitical tensions in the Middle East and sticky inflation. But he says he’s growing increasingly optimistic about long-term trends that overlap to create unique opportunities for investors. Consequently, he believes investors with the right risk appetite should be at least 80% in equities, and perhaps 100% if they can handle it.
Here are some of those overlapping trends he loves right now.
Fink described himself as an "optimistic person" during the Cramer interview. “I believe in 10 or 20 years humanity [will be] in a better position than it is today. With that view, I want to own hard assets today. I want to own equities. I want to be part of this economy.”
Hard assets or tangible assets — physical materials such as real estate, collectibles, precious metals like gold, and natural resources like oil, gas and food crops — are traditionally considered a safe haven during periods of economic turmoil and inflation. But Fink prefers certain types of hard assets over others. The Blackrock CEO has previously pointed out the risk to commercial real estate from rising levels of remote work.
Instead of office and retail, Fink prefers infrastructure assets.
“As the IRA is being implemented, these are good healthy long-term investments,” he says, highlighting the impact of the Biden administration’s infrastructure bill. He believes there are infrastructure opportunities that have the potential to deliver “anywhere from 8% to 15% returns with high probabilities of success.”
Double-digit returns are attractive in any environment, but especially noteworthy when they’re backed by hard assets.
The 2023 Blackrock Infrastructure report indicates that despite global stocks and fixed income falling more than 20% in 2022, infrastructure assets had a 5% total return. This demonstrates how stable and resillient these assets can be.
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AI and robotics
Rising trade tensions, Fink believes, are a headwind for automation. “We’re going to see an acceleration of fragmentation of the supply chains because of geopolitical issues,” he says. “As we advance AI and robotics, there is such an enormous opportunity for nearshoring.”
Nearshoring is a term used by industry experts to describe the relocation of factories and manufacturing hubs to countries that are closer to consumers. According to the International Monetary Fund, the cost of transporting goods by maritime transport increased by 500% between the second half of 2020 and October 2021. This has made manufacturing closer to home more attractive, but,considering that China is the world’s largest manufacturing hub, nearshoring in the near future simply means diversifying away from China.
According to Deloitte, since trade tensions between the U.S. and China worsened in 2018, the U.S. is importing more than 8% less from China. The same study shows that manufacturing production in Mexico had grown by 5.2% in 2022, more than double the 10-year average of 2.3%.
About 70% of business leaders across the U.S. and Europe said they were actively considering nearshoring or reshoring, according to a survey by ABB. And 40% of them said automation and robotics were part of the plan.
Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) have already deployed robots to manage inventory in warehouses and recycle phone parts. This trend could accelerate as the automation technology gets more advanced and the need to bring manufacturing back home becomes more pertinent.
Fink’s optimism about these trends is palpable but investors must also consider that his firm makes money on general optimism. Better market sentiment translates to better capital inflows for Blackrock’s funds and higher management fees for the company.
As Warren Buffett once said, “Don’t ask the barber if you need a haircut.”
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.