BlackRock’s letter to investors: end of globalization era, supply chain reshaping will push up inflation

BlackRock boss Larry Fink warned in a letter to investors on Thursday, March 24 that the Russia-Ukrainian conflict would reshape the world economy, prompting companies to pull out of global supply chains, further driving up inflation. He stated:

“The Russian-Ukrainian conflict ended the globalization we’ve experienced over the past three decades.”

In the letter, Larry Fink also explained his views on energy and digital currency. In terms of energy, he believes that in the short term, the conflict between Russia and Ukraine will inevitably slow down the world’s progress towards clean energy, but in the long run, it will accelerate the world’s transition to green energy. In terms of digital currency, he believes that the Russian-Ukrainian crisis may accelerate the development of digital currency.

As of the end of 2021, BlackRock was the world’s largest asset manager with $10 trillion in assets under management. As the CEO and founder of this asset management giant, Larry Fink is known as the “Godfather of Wall Street”.

The era of globalization ends, and supply chains push up global inflation

Fink pointed out that since the new crown epidemic, the global economy has moved towards decoupling, and the conflict between Russia and Ukraine has exacerbated this trend. In the future, businesses and governments will think more broadly about their reliance on other countries, which could lead to companies moving more operations to their home countries or neighbouring regions, and “pulling out of some countries” more quickly.

He believes that this “decoupling” of anti-globalization will inevitably bring more challenges to companies, such as higher costs and profit pressures. And this massive “repositioning” of the supply chain will push up inflation. He stated:

“Mass repositioning of supply chains is inherently inflationary.”

Referring to the adjustment of central bank policy, Fink stressed that central banks are facing a dilemma they have not faced in decades, that is, they must choose between high inflation and slowing economic activity to contain price pressures.

Clean energy transition: short-term slowdown, long-term acceleration

Larry Fink pointed out that today, energy security has become the top priority of the global energy transition.

Energy prices have risen sharply due to sanctions on Russian commodities. Fink believes that this “inevitably slows” the global move towards clean energy. Next year, the U.S. will focus on increasing the supply of oil and gas, while coal consumption in Europe and Asia is likely to increase, with energy security in mind.

In the long term, however, this has accelerated the world’s transition to green energy. There are two reasons: First, policymakers will promote investment in renewable energy as an important part of energy security. Germany, for example, has accelerated the time to 100% clean energy from 2050 to 2035. Second, high fossil energy prices make clean energy prices more competitive.

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