BlackRock CEO Fink Says Cyprus Instability Will Be ResolvedBei Hu and Susan Li
Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest asset manager, said the financial stability of Cyprus will be resolved and U.S. equities will rise 20 percent this year as the economy rebounds.
“It has some symbolism impact on Europe, but it’s not a really major economic issue,” Fink said of Cyprus in a Bloomberg Television interview in Hong Kong today. “It’s a $10 billion issue. It does remind us of the frailty of Europe. It does remind us that the European fix will be multiple years.”
Cyprus is the fifth euro-zone country to seek a bailout since 2010 to avoid a collapse of its financial system. Its parliament yesterday rejected an unprecedented levy on bank deposits, dealing a blow to European plans to force depositors to bear part of the rescue burden in a standoff that risks renewed tumult in the euro area.
Europe will come to some resolution over Cyprus, said Fink, who is in Hong Kong to speak at the Credit Suisse Asian Investment conference.
The initial plan announced on March 16 called for a tax of 6.75 percent of all deposits in Cyprus up to 100,000 euros ($128,760) and 9.9 percent above that. It was hammered out by euro-area finance chiefs over the weekend that sought to raise 5.8 billion euros from bank depositors to unlock 10 billion euros of rescue loans.
The levy sparked outrage in the island nation. It also ignited concern among investors about breaking the taboo over the safety of bank deposits and potentially triggering bank runs in other European countries.
“It’s really a debate upon whether you are going to have the EU becoming more controlling, if there’s going to be funding in Cyprus, how that funding will be, who will bear some of the responsibilities,” Fink said.
Fink said we’re on the “third inning” of the European debt crisis with six more to go, using a baseball analogy.
“This is a long process,” he said, applauding work done in Spain and Italy in the last year, while also highlighting issues in France.
Quite a few clients were taking “some chips off the table” to reap gains after a rally in the markets this year, he said. The MSCI World Index has risen 6.5 percent this year and 14 percent since Nov. 16.
“It was really people putting money to work and now some people are taking that money off,” Fink said. “Depending on the economic information that we receive, we can be in the beginning of a 5 percent correction or we’re going to be in a probably prolonged one- or two-month pause, which I don’t mind. But I would say by year-end equity markets are going to be much higher.”
Bank of Korea Governor Kim Choong Soo said today that the crisis that rocked the global economy and financial system in recent years may have entered its final stage.
“We can’t say the crisis is very near an end yet, but we’re in a process of wrapping it up gradually,” Kim said at a meeting with economists in Seoul. He didn’t specifically refer to Cyprus.
BlackRock joins Pacific Investment Management Co. Co-Chief Investment Officer Bill Gross in seeing a turnaround in the U.S. economic expansion. Gross earlier this month said the U.S. was moving toward a 3 percent growth rate in real gross domestic product this year on housing market recovery and nominal growth.
The dollar will “revalue upwards” in the next two years, Fink said.
Economists predict 1.9 percent growth for the U.S. for 2013, according to the median of 93 responses in a Bloomberg survey. Gross domestic product in the U.S. grew 0.1 percent in the fourth quarter after a 3.1 percent expansion in the third.
The U.S. is in the “best position” among western economies right now, Fink said at the Credit Suisse conference, citing budget deficit cuts over the last year and a half.
U.S. employment rose 236,000 in February, bringing jobless rate to a four-year low of 7.7 percent, while consumer prices increased 2 percent in the 12 months ended February, after a 1.6 percent year-over-year gain the prior month, the Labor Department said. Builders in the U.S. began work on more houses in February and permits for future construction climbed to the highest level in almost five years.
“If anything, we have migrated our view to a little higher” than the 2.5 percent-plus growth estimate, Fink said. “If it wasn’t for Washington and the uncertainty that Washington has created, we’ll probably be navigating closer to 4 percent.”
U.S. lawmakers remain locked in a fight over tax increases and spending cuts to help address the nation’s fiscal health.
Investors have bet on new Japanese Prime Minister Shinzo Abe to introduce policy stimulus to boost the economy and weaken the yen, which will boost earnings at exporters.
The Nikkei 225 Stock Average advanced 44 percent through yesterday from Nov. 14, when elections were announced that returned Abe to power. The yen dropped below 96 to the dollar earlier this month, falling from 80.25 on Nov. 14.
Fink forecasts the yen to stabilize at 95 yen to 100 yen to the dollar this year.
Net purchases of Tokyo-listed stocks by international investors rose to a record 1.02 trillion yen ($10.7 billion) last week, data compiled by the Tokyo Stock Exchange showed.
Japan’s equity market is still underinvested and the government’s efforts to stem deflation mean that companies like Toyota Motor Corp. will have record profits, said Fink.
He dismissed concern about competitive currency devaluation.
“I don’t think what Japan is doing is as significant as everyone is loudly talking about,” Fink said. Until a few years ago, China was considered a currency manipulator and the U.S. has followed the same practice, he said.
BlackRock, with about $3.8 trillion in assets, said March 19 that it is cutting about 300 jobs. BlackRock will add 500 people by year-end and 20 percent of that will in Asia, Australia and Japan, Fink said today.