'India's going to be a standout in global economy'
BlackRock CEO Larry Fink speaks about the subprime mess that is roiling the global financial markets, the chances of a US recession and the outlook for global equity markets.
By TNN |
| BlackRock CEO Larry Fink (L) with DSP Merrill Lynch Fund Managers chairman Hemendra Kothari. |
Larry Fink knows how to live in style. Every once in a while, the CEO of BlackRock — widely credited for foreseeing the subprime mortgage crisis in 2005 — holds wine drinking sessions in New York with fellow Wall Street hotshots. All the participants bring a bottle each. The catch being that the person with the worst choice pays for dinner. Hemendra Kothari, the chairman of DSP Merrill Lynch Fund Managers, Mr Fink’s new partner in India, is not known to be a wine drinker. He prefers Scotch but that has not stopped the two men from clinking wine glasses as they signed an agreement that will make BlackRock the part-owner of India’s ninth-biggest mutual fund. DSP Merrill Lynch will now be called DSP BlackRock.
Mr Fink is a hugely respected name in Wall Street. He is credited with creating the mortgage-backed securities market in the US way back in the 80s and his firm is one of Wall Street’s best performing financial firms, managing to outpace the much-envied Goldman Sachs.
In a wide ranging interview with ET, Mr Fink spoke about the subprime mess that is roiling the global financial markets, the chances of a US recession and the outlook for global equity markets. The ongoing distress in the subprime debt segment could be drawing to a close, he said adding that he expects India to be among the standouts in the global economy in 2008. Excerpts:
How long do you see the current crisis in the subprime debt market persisting?
We believe we are getting close to a bottom in subprime mortgages. I am not here to suggest that we are at the bottom yet. But we are surely closer to the bottom now than we were in November. BlackRock is planning to launch a fund to take advantage of the decline in these (subprime mortgage) asset categories. We hope to raise between $1 billion and $3 billion in this fund.
Mr Fink is a hugely respected name in Wall Street. He is credited with creating the mortgage-backed securities market in the US way back in the 80s and his firm is one of Wall Street’s best performing financial firms, managing to outpace the much-envied Goldman Sachs.
In a wide ranging interview with ET, Mr Fink spoke about the subprime mess that is roiling the global financial markets, the chances of a US recession and the outlook for global equity markets. The ongoing distress in the subprime debt segment could be drawing to a close, he said adding that he expects India to be among the standouts in the global economy in 2008. Excerpts:
How long do you see the current crisis in the subprime debt market persisting?
We believe we are getting close to a bottom in subprime mortgages. I am not here to suggest that we are at the bottom yet. But we are surely closer to the bottom now than we were in November. BlackRock is planning to launch a fund to take advantage of the decline in these (subprime mortgage) asset categories. We hope to raise between $1 billion and $3 billion in this fund.
What gives you that confidence?
The monetary policies. The Fed (US Federal Reserve) is giving us that confidence. The move to lower rates is reducing the delinquencies of loans that will be resetting over the next few quarters. So there will be greater stability with those mortgages. Back in August (2007), the super senior tranches (of mortgage securities) were quoting in the 80s. In November, they were quoting in the mid-60s, and now they are quoting in the mid to high 50s. With the Fed easing rates, the future problems of these mortgages have been alleviated to an extent. We could be nearing a bottom. There could be a sizeable correction before that happens. But we are getting nearer (to the bottom).
What is your view on emerging markets at a time like this when markets across the globe are going through a turbulent phase?
I had said way back in August, I don’t believe in decoupling of markets. What happened earlier this week with all the Asian and European markets breaking badly, there is a realisation that markets can’t decouple. The actions of the Federal Reserve, the actions of the US Congress about the Tax Bill is bringing about a view that the US economy may stabilise. And the general feeling is that once the US stabilises, we may not have to worry about other economies. India in particular has enjoyed remarkable economic success, and all the fundamentals for India continue to remain very strong. Because India has only 14% of its GDP dependant on exports. And there is such great need for investments in the domestic market, infrastructure, India is probably going to be among the standouts in the global economy. Indian equity markets need to stabilise a bit after a 70% rise in the last one year. If it rallies without settling down, it could fall as sharply. because no market can keep on rising.
How do you see global equity markets faring in 2008?
Equities could be a mixed bag in 2008, but they are likely to be up by the end of this year. The easing of rates (Fed) will make a difference. The tax cut will make even a bigger difference. As we saw, despite all the gloom and doom, reports from GE and IBM are that their businesses are strong. So exporters have benefited from a weak dollar. One of the reasons why European businesses have been hit is because of the weak dollar. For the next 6-8 months, I don’t think the dollar is cheap. So while we may be in a recession right now, I see some stability after the first quarter, the economy picking up in the third quarter and the stock market rallying in the fourth quarter. But we could see a lot of volatility in between.
The monetary policies. The Fed (US Federal Reserve) is giving us that confidence. The move to lower rates is reducing the delinquencies of loans that will be resetting over the next few quarters. So there will be greater stability with those mortgages. Back in August (2007), the super senior tranches (of mortgage securities) were quoting in the 80s. In November, they were quoting in the mid-60s, and now they are quoting in the mid to high 50s. With the Fed easing rates, the future problems of these mortgages have been alleviated to an extent. We could be nearing a bottom. There could be a sizeable correction before that happens. But we are getting nearer (to the bottom).
What is your view on emerging markets at a time like this when markets across the globe are going through a turbulent phase?
I had said way back in August, I don’t believe in decoupling of markets. What happened earlier this week with all the Asian and European markets breaking badly, there is a realisation that markets can’t decouple. The actions of the Federal Reserve, the actions of the US Congress about the Tax Bill is bringing about a view that the US economy may stabilise. And the general feeling is that once the US stabilises, we may not have to worry about other economies. India in particular has enjoyed remarkable economic success, and all the fundamentals for India continue to remain very strong. Because India has only 14% of its GDP dependant on exports. And there is such great need for investments in the domestic market, infrastructure, India is probably going to be among the standouts in the global economy. Indian equity markets need to stabilise a bit after a 70% rise in the last one year. If it rallies without settling down, it could fall as sharply. because no market can keep on rising.
How do you see global equity markets faring in 2008?
Equities could be a mixed bag in 2008, but they are likely to be up by the end of this year. The easing of rates (Fed) will make a difference. The tax cut will make even a bigger difference. As we saw, despite all the gloom and doom, reports from GE and IBM are that their businesses are strong. So exporters have benefited from a weak dollar. One of the reasons why European businesses have been hit is because of the weak dollar. For the next 6-8 months, I don’t think the dollar is cheap. So while we may be in a recession right now, I see some stability after the first quarter, the economy picking up in the third quarter and the stock market rallying in the fourth quarter. But we could see a lot of volatility in between.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
ADVERTISEMENT
