BlackRock Bets On ETF Growth And Regulatory Liberalization In Asia

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There is no denying that overall the global economy is in doldrums, but then there is nothing wrong in having a list of favorite economies when you have a long-term picture in mind. If recent reports are to be believed, BlackRock’s (NYSE:BLK) favorite economies are in Asia – and include China and India to be specific. [1] [2] While China continues to remain at the top of the list for most financial firms despite a few weak economic indicators in the recent past, India attracts a rather mixed response from these firms as the country stares at its slowest GDP growth in a decade.

BlackRock has a clear stand when it comes to both countries: there is more than enough revenue potential here to warrant vying for a strong presence. While steadily growing equity markets and government-led economic reforms are the primary reasons for BlackRock’s optimism towards China and India, the largest global asset manager also sees immense growth opportunities in ETFs – something it clearly wishes to tap with its iShares offerings.

We maintain a $213 price estimate for BlackRock’s stock, which is at a premium of about 10% to the current market price.

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See our complete analysis of BlackRock’s stock here

The size of the global Exchange Traded Funds (ETFs) market is currently estimated at $1.8 trillion. [3] And BlackRock dominates the market through its iShares product offerings which recorded assets under management worth almost $500 billion in equity products and just under $190 billion in fixed-income products at the end of Q3 2012. That’s near 40% share of the industry. And BlackRock forecasts 20-30% growth in the industry size over the next few years. [4]

A sizable share of this growth, it believes, will come from China and India. This is why it is scrambling to acquire licenses to operate in China’s opening economy and establish partnerships in India. While the company will need to put in considerable efforts to gain a foothold in both markets which are primarily dominated by small-scale, local asset management firms, we believe the pay-off associated will be well worth the effort. We currently forecast a conservative 6% annual growth in the size of iShares assets BlackRock manages over the coming years. You can see how faster or slower growth will impact the company’s total value by making changes to the chart above.

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Notes:
  1. BlackRock’s presence grows in Asia, Financial Times, Nov 29 2012 []
  2. Reuters Summit-BlackRock bullish on India, pins hopes on reforms, Reuters, Nov 30 2012 []
  3. Ambitious iShares chief sees massive ETF growth, Financial Times, Dec 2 2012 []
  4. ETF Handbook Q4 2011, BlackRock Website []