Advice for South African investors from the world’s largest asset manager

South African investors should invest for the long term as many of the fears and concerns that are apparent now are unlikely to significantly impact investment returns in the long run. 

This is advice from BlackRock CEO Larry Fink, who spoke at the 2024 Cogence Summit alongside Discovery CEO Adrian Gore. 

Founded in August 2022, Cogence aims to equip advisers with the tools to provide their clients with best-of-breed advice. 

This will be done by marrying the institutional quality risk management technology Aladdin Wealth with global asset research and allocation insight from BlackRock, supported by RisCura’s local investment expertise. 

Where available, Discovery’s Vitality collects individual clients’ unique health and behavioural data, which can be factored into perfecting individual portfolios.

At the Cogence Summit 2024, Gore asked Fink what he is most concerned about as the CEO of the world’s largest asset manager and what BlackRock is watching closely. 

Fink said most of the conversations he has with BlackRock’s board are around the same issues, such as geopolitical events or monetary policy in key economies. 

“But, overall, when you think about what our responsibility is to try to have a conversation with clients that they need to overcome the short-term fears they have,” Fink said. 

“Right now, there is a lot of fear in the world regarding what is happening and what the future holds.” 

“Over a 30-year horizon, with an insurance product, retirement product, or investing for retirement, the outcomes of current events do not have much bearing on an investment for the next 30 years.” 

Fink explained that while current fears may push asset prices up or down, these effects are marginal over a 30-year period. 

“I try to tell everybody that it does not really matter, but everybody wants to understand what is going on today and how that will affect them,” he said.

“We are spending most of our time talking to people about the whole concept of saving for retirement and investing for the long run.” 

Fink said that understanding this is crucial to positive investment outcomes. In the long term, the value of assets, particularly equities, is determined by underlying fundamentals like earnings and cash flow – not short-term political events. 

Fink also made it clear that there is really only one game in town when it comes to investing, and that is the US stock market. 

When giving his outlook for the best places to invest your money in the coming decades, Fink explained that the US is by far the number one destination for capital. 

“I would say overall, the US is getting broader and broader and broader. The US moat is getting bigger and if you just look at what is going on relating to technology and AI, it is driven by American companies,” he explained. 

The US’ dominance in the investment world goes beyond technology and AI – it simply dominates the world financially. 

Fink explained that the largest competitive advantage the US has over Europe and Asia is the depth and strength of its capital markets. 

“The US is blessed in having a strong banking system tied to a strong capital markets system. While the epicentre of the crisis in 2008/09 was the US banking system, it was able to bounce back a lot faster thanks to its strong capital markets.” 

The capital markets effectively stepped in to replace banks that lost billions in the Great Financial Crisis and were severely limited by the intense regulation of their businesses in the 2010s. 

“In my conversations with Europe now, the biggest problem is that they do not have a European Union for banking or for capital markets, and it is holding back the entire continent,” Fink said. 

While European banks, including their UK peers, are large and have traditionally been well-managed, they are valued at a fraction of US banks such as JP Morgan, Citi, or Bank of America. 

“The market capitalisation is anywhere from two to three times larger than those same institutions in Europe, and much of it has to do with the strength of the capital markets. That is what is driving the divergence in value,” he said.

Fink said most of his conversations with leaders from emerging markets, including Africa, revolve around strengthening and expanding capital markets by encouraging increased domestic savings.