BlackRock Inc. Chief Executive Officer Larry Fink said on Monday that global economic growth is synchronized for the first time since the 2007-09 financial crisis, and that signs of stress in riskier markets should not cause hysteria.
But Fink warned that some investors' comfort with calm markets could lead to "a setback" or even "a mess" if trades betting on placid markets start to do poorly.
"Good markets, even good bull markets, have 5 and 10 percent corrections. We have not seen that," said Fink, who spoke at the Reuters Global Investment 2018 Outlook Summit in New York.
"When you mention the high-yield market being a little squeamish last week, in the scheme of things, who cares? It's fine, it's natural."
Global stocks edged away from recent record highs on Monday, after several days of price swings in markets from high yield to U.S. government bonds rattled a quiescent bull market.
Yet Fink said global markets remain on sound footing, where it is hard to see "a real setback economically," despite concerns over a U.S. tax reform deal as well as investors who are profiting by betting markets will stay calm.
U.S. equity market volatility – the daily fluctuations in stock prices – has hovered near record lows for much of this year. That has pushed some investors to opt into a lucrative, but risky, trade using derivatives to bet that volatility will stay low or fall.
"The biggest risk that I see is this 'benign confidence' that volatility is not creeping up," said Fink, whose company oversees nearly $6 trillion in assets, making it the world's largest asset manager.
The U.S. stock market is eagerly anticipating a final U.S. tax bill that is expected to reduce corporate taxes and push up their profits.
Fink, who reckons the tax bill will likely help BlackRock's bottom line, said the Republican party-driven reforms could push up earnings but would not likely lead to dramatically higher levels of investment in areas such as employment and equipment.
"The question is, 'Are business leaders motivated that much by tax? I think on the margin, yes, but it's not overwhelming," Fink said. "This whole idea of repatriation of cash that is going to stimulate the economy, I think that is entirely wrong. It will stimulate stock rallies."
Fink also said he was concerned by a proposed tax law change that would make compensation for top executives above $1 million non-deductable for public companies, rules that would not apply to private companies.
He said he worried that it and similar steps could discourage companies from going public and hinder a strength of U.S. capital markets.
"We're conveniently destroying some of the foundational strength of our capital markets," he said. "If you do changes that make it more difficult to be a public (company) than private, think about the unintended consequences of that," Fink said.
Global economic growth is high or improving in surprising places, from Japan to Europe and China, said Fink, who was especially complimentary of French President Emmanuel Macron.
"The Macron election truly had a meaningful impact on the psyche of Europe," said Fink.
Fink was one of 21 global investment managers who attended a dinner organized by Macron at the Elysee palace in Paris last month where the 39-year old French leader promoted the sweeping pro-business reforms he implemented since his election in May.
The former investment banker has passed a reform of labor rules making hiring and firing easier, has cut corporate tax and scrapped a wealth tax on all but property assets.
He has also pledged to "relaunch" Europe in tandem with Germany, after years of economic and financial crisis, with his plans to bring France's budget deficit below the EU limit of 3 percent being met with praise in Berlin.
Fink said on Monday the reforms have been "incredible."
"You could see a path in which there could be some better focus and a path toward better eurozone unity," he said.