BlackRock's Fink calls market drop 'old-fashioned correction'

CEO says long-term investors staying the course, blames hedge funds for volatility

Feb 5, 2014 @ 5:55 pm

stocks, equities, laurence fink, blackrock, bill gross, market, selloff, hedge funds, china, economy
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(Bloomberg News)

BlackRock Inc. (BLK) Chief Executive Officer Laurence D. Fink, whose firm oversees $4.3 trillion in assets, said the recent market decline is a temporary setback as opposed to a departure from current economic growth.

“I look at this as a good old-fashioned correction,” Mr. Fink said Wednesday during an interview on Bloomberg Television's “Market Makers.” Mr. Fink said BlackRock isn't seeing long-term investors change their behavior, and that volatility is being caused by hedge funds that had made correlated trades.

Stocks have tumbled worldwide in 2014, erasing about $3 trillion in value this year amid a selloff in emerging-market currencies as China's economy slows and the Federal Reserve cuts back stimulus. The Standard & Poor's 500 Index (SPX) has slumped about 5% in 2014 and the Dow Jones Industrial Average has fallen 6.7%.

“I'm surprised the market is upset the Chinese economy has slowed down in the short run,” Mr. Fink said. Slower growth in China isn't “as problematic as some people believe.”

Forecasters surveyed by Bloomberg expect the Chinese economy to expand 7.4% this year compared with 7.7% in 2013.

In November, Mr. Fink predicted a chance of a 15% drop in stock markets because of political risks in China, Japan, France and the U.S. A week later, he said he was less worried about the markets after China announced economic reforms and signs were mounting that U.S. policy makers would pass a budget deal.

Mr. Fink said Wednesday investors can't rely on central bank moves any more for growth. The market decline shouldn't have an effect on the Federal Reserve's decision to taper its unprecedented asset purchases, especially because the U.S. is growing at a faster rate than last year, so the central bank has room to “unwind.”

Bill Gross, co-founder of Pacific Investment Management Co., the world's biggest bond manager, is less optimistic about U.S. growth. He said during a Bloomberg TV interview Tuesday that he was doubtful whether the expected 3% growth rate in 2014 can really be achieved.

“What we see going forward is a global marketplace and a global economy where growth is slow,” which will persist for a “long, long time,” Mr. Gross said.

MARKETS REBOUND

Benchmark indexes rebounded Tuesday after the S&P 500 slid 2.3% on Feb. 3 to close at the lowest level since October. The Chicago Board Options Exchange Volatility Index, known as the VIX, increased as much as 8.4% Wednesday after losing 11% Tuesday, the most since Dec. 18.

Given the run-up in stock prices last year, some giveback was inevitable, said Gautam Batra, a London-based investment strategist at Signia Wealth Ltd.

“We were overdue for a correction,” he said in a telephone interview. “It probably could extend for the next four to six weeks.” Mr. Batra said he would take a darker view if the U.S. economy slows, because the market is not positioned for such a development.

Mr. Fink, one of the co-founders of BlackRock, said in 2012 he would invest all of his personal wealth in equities, and has said he's bullish on the U.S. in the long term because of its banking system, improving housing market and supply of natural gas.

(Bloomberg News)

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