BlackRock Global Insights

The Bid - From Savings to Prosperity: The Global Impact of Capital Markets

Episode Description:

Capital markets are a powerful force in the global financial landscape. These markets connect long-term savings with productive uses of capital. Driving innovation, growth and job creation. But what are capital markets and how will they contribute to long-term global economic development?

Samara Cohen, chief Investment Officer of ETF and Index Investments at BlackRock joins host Oscar Pulido to explore the key differences in capital market growth strategies between mature and emerging markets, how capital markets help in mobilizing investment, and the role of regulatory frameworks and market innovation in ensuring their effective functioning.

Sources: The Virtuous Cycle: The Global Potential Of Capital Markets BlackRock, 2025

Written disclosures in each podcast platform and each episode description:

This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.

Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies.

For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

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<<TRANSCRIPT>>

Oscar Pulido: Capital markets are a powerful force in the global financial landscape. These markets connect long-term savings with productive uses of capital. Driving innovation, growth and job creation. But what are capital markets and how will they contribute to long-term global economic development?

Welcome to The Bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Pulido.

Here to help me understand this concept is Samara Cohen, chief Investment Officer of ETF and Index Investments at BlackRock. Together we'll explore the key differences in capital market growth strategies between mature and emerging markets, how capital markets help in mobilizing investment, and the role of regulatory frameworks and market innovation in ensuring their effective functioning.

Samara, thank you so much for joining us on The Bid.

Samara Cohen: Thank you for having me.

Oscar Pulido: Samara, we're here to talk about capital markets and the importance that they have to the global economy. It's a term that I think you and I share a lot. We understand what that means or we use it a lot in our day to day. But maybe for some people this term, capital markets is a little bit more nebulous. So maybe, let's start there. What do we mean when we say capital markets?

Samara Cohen: You are so right Oscar, and this was probably the biggest learning for me in the work we did on this paper, was the importance of defining capital markets.

And I say this as a multi-decade markets professional myself. I was working with the different definitions some of my colleagues were working with and just the table stakes sitting down and saying what are we talking about when we say capital markets? And it just reminds me, you learn when you start a job, there's no dumb questions! Ask your questions and you get to a point in working at a markets firm, you don't think to say, Hey, what are capital markets? But I'm really grateful to the colleagues that got around the table with us and said wait a minute. I think you guys are talking about different things.

Fundamentally, what are capital markets? So, here's our definition. Capital markets are the connectors between consumers and suppliers of capital. Consumers of capital are companies, countries, governments, suppliers of capital are people with cash who don't need that cash right now. Like savers, long-term investors.

So, the connective tissue, whether that is a public stock market or an OTC market or increasingly private bilaterally negotiated transactions, all of that is the how of how we take cash and put it to its most productive use in fueling economic growth. So, that is our broad framing of what we mean when we say capital markets,

Oscar Pulido: Right, and connective tissue, that term you use, which is taking the capital that investors have, which could be an individual or it could be a pension fund and funneling it to the entities that might need that capital for growth - which could be a company or a government, I think were some of the examples that you gave.

When we think about capital markets, is there a difference between what they look like, their maturity, their evolution in the developed world - countries like the U.S., the UK -versus the emerging world countries like maybe China and India, is there difference or are they pretty similar?

Samara Cohen: There are huge differences in capital markets around the world, around countries, and even within countries. So, to give you a couple examples to bring this to life, if I talk about U.S. capital markets. I think the initial image that comes to mind is the, U.S. public equity market - the iconic image of someone ringing the bell at the New York Stock Exchange at the close on CNBC, or doing the same on Nasdaq.

And those are a specific type of capital market; the public equity market. And the public equity market is pretty mature actually in the us 62% of people in the U.S. are invested in some way, either directly or indirectly through their pension fund in our public equity markets. But even in the U.S. where we have these deep mature public equity markets, we have more emerging marketplaces, that potentially present more opportunities for investors to participate in like private equity and private debt markets.

Then we can look at an emerging economy, which is aspiring to create more of a capital market like Saudi Arabia for example. Some of the oil rich Middle Eastern countries really want to create more opportunities for their people to invest in local and diversified businesses and business endeavors by building stock markets and looking to examples like the more developed stock markets in the U.S., and in Europe to do that.

Oscar Pulido: So, it sounds like regardless of whether it's a developed market like the U.S. or a developing market like Saudi Arabia, both of these examples, there's still evolution going on. Maybe in Saudi Arabia, it's just getting people, to start investing, to start taking advantage of the, evolving capital market regime. And in the developed world, it's furthering that from public to private markets, which is actually a topic that we've been talking about recently. When we talk about just the impact on our day-to-day worlds, you alluded to this capital being provided to those who need it, who are using it for growth and to grow their companies, but talk a little bit more about how capital markets fuel innovation growth in an economy?

Samara Cohen: Really one of the best examples today is retirement and the opportunity that capital markets presents for retirement, savings and savers around the world because retirement is the definition of long-term capital supply.

It is money that someone wants to grow for when they need it in the future. And really for the past, 20-25 years around the world, people have probably over relied on bank accounts and bank deposits for their retirement savers. Less so in the U.S. than in other places, but even in the U.S. and importantly, they cannot generate inflation-beating returns with that strategy. So how do they generate inflation-beating returns? They have to invest in some way in economic growth.

So, if we look at, again, companies, public endeavors, long-term, growth opportunities that need capital to fuel them, to fuel expansion, investment, innovation - that is a great match-up of time horizon opportunity and then hopefully return potential for the long-term use of that capital.

Oscar Pulido: Samara, one thing that comes to mind is the banking sector. In many countries, the banks play a big role in terms of financing the growth of an economy. So, as we're talking about capital markets, are banks part of this or is that different from what you're describing?

Samara Cohen: The banks play a role in capital markets and at the same time, the role of banks and how it has been evolving is happening alongside the modernization of capital markets.

For example, a company can look to finance itself in a number of ways. One of those ways might be to get a loan from a bank, but another way is to actually seek capital from issuing a bond and making that bond available for a much broader group of investors to participate in. Or they can even negotiate a private debt transaction with a larger investor. And that is a different sort of risk transfer from what has historically been facilitated by the, banking sector.

And if we look at the trajectory of markets and banks over the past 20 years, that's really been where the combination of both regulation and technology has taken us post-crisis regulation has required that banks hold much more capital and manage their risk in a much more significant way, which in a lot of ways has reduced bank lending to the market and capital markets have stepped in to fill that gap,

Oscar Pulido: Right? Companies have a lot of ways to finance themselves. It's not just through banks, it could be through issuing stock or debt into the capital markets. And you touched on the regulatory framework, which has had an impact here. So, talk a little bit more about that and maybe just some of the innovation that you've seen in how markets work that is helping with the evolution of the space.

Samara Cohen: Those two things really live side by side. Technology and regulation together are really the twin forces that modernize a market. So, let's look at the bond market as an example.

I remember when I first became, an investor, on my own, and also being the one finance person in my family was the one everybody called for advice and what they should invest in. So, even though as a kid, putting my retirement money inequities. I was still the bond person that everybody asked questions around. It was really hard for people to participate in the bond market then, 'cause it was hard to get information on bonds. The bond market was largely an institutionally, what we call over-the-counter. You couldn't look up information around bonds on your phone. You couldn't buy a bond on your phone, you'd have to go to a broker dealer, pay a big commission. The bond market was, generally speaking, pretty opaque and inaccessible.

So fast forward to today, number one, technology has made all of the difference. Digital platforms, electronic trading of bonds, and innovations like ETFs, which allow people to see on their phone in a way that they can access by looking at any app that looks at stocks, where different parts of the bond market or trading. It's a level of access and transparency in a different zip code than where we were 20 years ago.

At the same time, regulation has evolved to provide really sound, investor guardrails, disclosure requirements, education prerequisites to help investors on their journey of participating in this innovation.

Oscar Pulido: So more transparency, better technology, more information. It sounds like it should make it easier for investors to participate in capital markets, but why is that important? Why do we care if more investors are participating in the capital markets? Is that important?

Samara Cohen: It's important both for investors to have better financial futures, and it's also important for economic growth because growth needs capital in order to fuel it. and companies, countries, governments, benefit from having diverse sources of capital which creates more resilience in how they borrow.

But for individuals, really what matters - and this is why in the environment that we've been in the last couple of years - the bond market matters so much more. For a long period of time interest rates were so low, long-term allocations to the market didn't necessarily have significant allocations to fixed income, there wasn't any return. Now there is, there's a lot of volatility in the yield curve and so having a more active approach to that fixed income portion of a portfolio has never been more significant for an investor than it is today.

Oscar Pulido: And I'm thinking a little bit about what Larry Fink has been talking about in his letter to investors, just going back to the point of the importance of getting investors participating in markets is that there are these structural trends in the world that represent good investment opportunities, things like infrastructure, and that investors have an ability to participate in that growth by investing in these long-term projects. So it goes back to the point of matching the pools of capital where the investors are and those that need capital, which are the entities that are trying to build these infrastructure projects.

Samara Cohen: Yeah, that's the perfect way to say it, Oscar. In order to create more growth, investments, investment opportunities, there need to be investment opportunities. They need capital, and investors need to have a broader, more diversified suite of investments in order to outperform inflation over whatever their time horizon is.

Oscar Pulido: Let's talk a little bit about areas of the world, we started talking about this a little bit where maybe the development of financial markets is still in the earlier stages, but what are some of the challenges in these areas where the capital markets are less mature maybe at a different stage than the U.S. is now, or some of the other developed markets are. what do you see as some of those challenges?

Samara Cohen: Generally, there's three categories of progress in modernizing a market and making it available to a broad group of investors.

And that is creating transparency. Transparency is really the foundation of investor confidence. No one wants to participate in a market or take a risk if they can't get information, if they can't see where prices are, if they can't understand and consume basic risk characteristics of what they are investing in. So, transparency and data is always foundational to building a market.

The next piece is really access, like what's your on-ramp to a market. And you and I talked a little bit about the bond market of yore where it was a phone and finding a broker, but actually being able to have tools that people are comfortable using increasingly mobile technology that allows you to see the market and transact in the market. That level of access is increasingly in demand today because one of the big trends around the world in capital markets is actually the desire for direct participation individual investors who want to participate on their own terms and their own timeframe in the market. So that access piece is pillar number two.

And then pillar number three is really resilience. What are the guardrails around the market, particularly in times of, volatility and stress? Because stressed moments in a market can be moments that validate confidence or really undermine confidence in the market.

And so, what you see even in the most mature and modern markets, is hopefully never waste a crisis. Like anytime there is something that happens that hasn't happened before in a market, what in markets that are continuously transforming is, implementing new safeguards and volatility mechanisms.

Now, a lot of times in markets that don't have those or are still growing, they just close when there's volatility. But even having a plan in place that is clearly communicated on how and when a market will close is really important to the development of a market because again, when you can't access a market and that surprises you, that can undermine confidence.

So, really thinking about those things together, transparency, access and resilience are the core characteristics of building a new market - whether that's in an emerging country or in an emerging ecosystem like the crypto ecosystem. It's the same set of factors there.

Oscar Pulido: And I'm glad you mentioned the word volatility, as well, because while we're talking about the long-term benefits of capital markets and how they can fuel economic growth, it doesn't mean they don't go through periods of volatility either. And your point is simply that when you go through those periods of volatility, things like having transparency, having access, having resilience will just instill confidence to stick through those periods of volatility.

Samara, what would be the takeaways if you're talking to investors of how they should think about unlocking the full potential of what capital markets can bring?

Samara Cohen: Oscar, we started this conversation by, defining capital markets and I said as a multi-decade markets professional, that was a good exercise for me. So hopefully a big takeaway for anyone thinking about the markets is that there are no dumb questions. It doesn't matter if you are new to the markets, seasoned in the markets, markets at their best actually are continuously changing and transforming. So, number one, having that confidence that the best markets are the ones that the most people can participate in.

So the markets belong to everyone really, and asking those questions is really important, and there's better information now, than ever before for investors to really self-educate themselves on their market's journey, including, hopefully reading papers like ours, listening to conversations on The Bid and others, however you consume your information. I'm a reader, whether you're a listener.

There is a huge amount of information and the markets, are evolving rapidly and technology is making them more accessible and transparent. So, I think there's never been a better time to be an individual investor looking to engage in markets and ultimately that actually makes me really bullish for global economic growth because of that connection between investor participation and fueling the biggest opportunities we have around the world.

Oscar Pulido: And so much of, investors having confidence, to invest, is demystifying sometimes the terminology we use and just how things work, which is what you've helped us do today to define capital markets. Help us understand the importance, to long-term economic growth, and we appreciate you doing that. I'm sure we'll ask you to come do it again at some point tomorrow. Thank you again for joining us on The Bid.

Samara Cohen: Thank you so much for having me, Oscar.

Oscar Pulido: Thanks for listening to this episode of the bid. If you've enjoyed this episode, leave a review and share with a friend, and if you want to keep up with what's happening in the economy and the latest market trends, make sure to subscribe to the bid wherever you get your podcasts.

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Spoken disclosures at end of each episode:

This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.

For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

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