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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.

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Speaker 1: This week on the podcast, I have an extra special

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Speaker 1: guest and his name is James Donald and he is

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Speaker 1: Managing Director and Head of Emerging Markets at Lazard Asset Management,

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Speaker 1: where he runs a team of seventy people and analysts

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Speaker 1: focused on the emerging markets across equities and fixed income.

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Speaker 1: He has been investing in the emerging market space for

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Speaker 1: over three decades. If you find the world of emerging

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Speaker 1: markets remotely interesting, well then strap yourself in for a

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Speaker 1: master class in emerging markets investing. We discussed everything from

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Speaker 1: valuation issues to constructing a portfolio, to risk factors that

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Speaker 1: exist in a M that may not exist in in

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Speaker 1: developed countries. How countries go from runtier to EM and

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Speaker 1: from e M two developed and some of those developed

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Speaker 1: countries have gone back uh, falling back into e M uh.

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Speaker 1: This is an area I am personally fascinated in because

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Speaker 1: I'm aware of the fact that U S stocks are

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Speaker 1: let's just say, richly valued, European and Japanese stocks a

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Speaker 1: little less richly valued. But EM is where the valuation exists.

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Speaker 1: And when we look at the track record of EM

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Speaker 1: and US stocks over long periods of time. It seems

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Speaker 1: like the leadership goes back and forth its cycles over

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Speaker 1: longer periods of time, five seven, nine years at a time.

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Speaker 1: We just finished a nearly decade long period of time

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Speaker 1: where e M not just underperformed the US, but significantly

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Speaker 1: underperformed the US. The gap was about as wide as

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Speaker 1: it ever gets. Last year seemed to be the beginning

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Speaker 1: of a change of leadership, and we could see e

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Speaker 1: M stocks outperforming the United States and other developed nations

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Speaker 1: UH for quite a number of years, perhaps even a

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Speaker 1: full cycle. So if you are all interested in places

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Speaker 1: like China, India, Russia, Brazil, Mexico, Turkey, Greece, I keep

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Speaker 1: saying Vietnam even though it's a frontier country, but I'm

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Speaker 1: I'm intrigued by that part of the world, South Korea

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Speaker 1: and Taiwan as em countries when really they're almost developed countries.

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Speaker 1: You will find this conversation absolutely fascinating. So, with no

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Speaker 1: further ado, my conversation with Lazard Asset Managements James Donald.

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Speaker 1: My special guest today is James Donald. He is the

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Speaker 1: head of Emerging Markets at Lazard Asset Management, where he

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Speaker 1: is also a portfolio manager and runs a variety of

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Speaker 1: equity strategies in the emerging markets space. James Donald well

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Speaker 1: into Bloomberg. Thank you, Barry. So you began your career

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Speaker 1: back in Nree, which was a pretty good time to

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Speaker 1: get into finance, the start of a long bullmarket. What

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Speaker 1: was your first job on Wall Street? Well? Um, I

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Speaker 1: was born in Toronto and I actually began my first

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Speaker 1: career in Toronto at a brokerage firm called Wood Gundy,

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Speaker 1: where I did a training course around the firm. So

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Speaker 1: you participated or helped build the trading course? Um, I

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Speaker 1: participated in the trading corps in the training course, and

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Speaker 1: I was involved in a whole lot of different functions

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Speaker 1: in the firm, anything from operations all the way to

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Speaker 1: government finance. So what what drew you to the emerging

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Speaker 1: market side? Well? I I then got a position at

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Speaker 1: s G Warburg in London and UH. I went into

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Speaker 1: the investment management area there and was involved in global investments.

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Speaker 1: This is really pre emerging markets. Emerging markets only really developed,

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Speaker 1: I would say in UM and UM So I was

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Speaker 1: involved in managing global portfolios a lot of us UH

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Speaker 1: holdings at that time and really learned about portfolio management

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Speaker 1: at SG Warburg and the firm ultimately became Mercury Asset Management.

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Speaker 1: And in the early nineteen nineties, when Mercury was establishing

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Speaker 1: it's Emerging market team, I was very interested in joining

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Speaker 1: that team, and so I was one of the first

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Speaker 1: members that that joined that team and was involved in

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Speaker 1: managing portfolios at Mercury. What was the motivation that led

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Speaker 1: you to say, So, you're in London the center, especially

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Speaker 1: in the nineties of a of a fairly booming developed nation,

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Speaker 1: developed metropolis. Europe was really star to come into its

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Speaker 1: own What made you say, Hey, all these developed market

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Speaker 1: things are kind of interesting, but let's venture into something

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Speaker 1: a little more adventuresome. Yeah. I had done a lot

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Speaker 1: of work analyzing smaller stocks in the US and looking

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Speaker 1: at stock markets in Asia and back then essentially the

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Speaker 1: equivalent of emerging markets places like Hong Kong and Singapore

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Speaker 1: and UM Malaysia and areas like that, and so uh,

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Speaker 1: I thought these markets were ones that I had had

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Speaker 1: experience or not two different experiences with. And I also

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Speaker 1: was very attracted by the cultures um the variety of

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Speaker 1: cultures in emerging markets. And at the end of the day,

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Speaker 1: I felt that people around the world want to see

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Speaker 1: their economies develop, and the capital markets are very very

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Speaker 1: critical part of that. So this was long before for

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Speaker 1: the era of index funds or country funds, where you

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Speaker 1: could just push a button and one transaction gives you

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Speaker 1: exposure to fill in the blank. Asia, Vietnam, emerging markets

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Speaker 1: very different era. How was it like in those those

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Speaker 1: days compared to today. It was before index funds, but

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Speaker 1: it wasn't necessarily before country funds. A lot of country

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Speaker 1: funds actually developed during this time because a lot of

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Speaker 1: these markets were very, very small and they don't didn't

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Speaker 1: want to be overwhelmed by foreign capital flowing in and

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Speaker 1: flowing out. So actually country funds were very very big

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Speaker 1: part of the development of those markets. In general, the

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Speaker 1: markets were very small. A lot of the big big

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Speaker 1: countries today, for instance, China, which is close to being

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Speaker 1: thirty percent of the Emerging Market Index today was around

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Speaker 1: one percent. And back then, places like I mean, Malaysia

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Speaker 1: was a huge market. Mexico was a very big market,

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Speaker 1: whereas say Brazil was relatively small or um you know,

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Speaker 1: for instance, India was relatively small as well. Were there

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Speaker 1: any restrictions on we know, everybody wants capital coming into

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Speaker 1: their countries. Were there any restrictions on how that money

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Speaker 1: could be removed? That were they gated or any of

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Speaker 1: these country funds? And I was thinking of country ETFs

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Speaker 1: and indexes, but these specific country funds, if you needed

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Speaker 1: to get your money out in a hurry, was that

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Speaker 1: was that feasible? Well, if you go back more than

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Speaker 1: twenty years, a great deal of these markets, we're not

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Speaker 1: markets you could directly invest in. You had to go

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Speaker 1: through those country funds. So they were fixed pools of capital.

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Speaker 1: And as a result of that, you know, the country

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Speaker 1: funds values could be very different from their net asset values,

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Speaker 1: and so essentially that could distort the picture very heavily.

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Speaker 1: And no, no computerized arbitrage opportunities, none, none of that.

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Speaker 1: Slowly these markets have opened up and UH and investors

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Speaker 1: like ourselves have been able to directly invest in them.

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Speaker 1: Let's get into some of the details and specifics. How

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Speaker 1: do you define what is or is not an emerging market?

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Speaker 1: Is it an economic definition? Is it a political definition?

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Speaker 1: Where where are the lines drawn? It's something that's changed

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Speaker 1: over time. I think originally the index was based or

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Speaker 1: the indices were based on economic development and and political development.

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Speaker 1: They've moved over time more towards what's easily accessible and

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Speaker 1: M s c I is the biggest index provider in

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Speaker 1: this area, and they're very focused on accessibility, meaning define

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Speaker 1: accessibility the ability to get capital in and the ability

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Speaker 1: to get capital in capital the ability to to get

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Speaker 1: information on these markets without any major restrictions. So now

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Speaker 1: as good a time as any to ask what is

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Speaker 1: the distinction between the so called frontier markets and emerging markets? Well,

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Speaker 1: those have even less accessibility on the whole. They are

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Speaker 1: much more rudimentary economies and rudimentary markets, um, and they

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Speaker 1: have less liquidity in them. So uh, there are is

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Speaker 1: an ongoing process by which countries have moved between frontier

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Speaker 1: markets and emerging markets and even back into frontier market.

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Speaker 1: It's a fuzzy line, it's not a very bright line there.

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Speaker 1: There's certainly some gray in in that whole discussion. And

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Speaker 1: you mentioned earlier China is about of emerging markets. It's

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Speaker 1: arguable that they're not that far off from being a

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Speaker 1: developed nation. When when might that occur where China is

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Speaker 1: no longer considered an em country. Yes, I I understand

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Speaker 1: that I get asked that question a great deal I

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Speaker 1: would say there are there are other countries that would

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Speaker 1: be probably contenders, at least based on economic development before China.

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Speaker 1: Give us some examples, well, the most obvious or South

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Speaker 1: Korea and Taiwan, which are actually quite developed economies, relatively

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Speaker 1: wealthy economies. There are some restrictions with changing money and

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Speaker 1: with investor identification that has caused them to stay in

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Speaker 1: emerging markets, but in terms of overall capital market development

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Speaker 1: and economic development, they're probably the leading contenders. You would

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Speaker 1: think South Korea is much closer to a Japan like

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Speaker 1: economy than a China like economy. Well, China has come

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Speaker 1: a long way. China has industrialized very successfully, and China

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Speaker 1: is no longer a low wage country. It's actually a

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Speaker 1: medium wage country. So it's not nearly as wealthy as

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Speaker 1: South Korea or Taiwan on a per capita basis, but

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Speaker 1: it's moved up quickly. One of the appeals of emerging

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Speaker 1: markets are that within this equity half of your portfolio,

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Speaker 1: they're not completely correlated with either developed markets or the

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Speaker 1: US as a particular example. But that raises the question

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Speaker 1: how correlated or uncorrelated are emerging markets with the U

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Speaker 1: S stock market? Well, the correlations have increased. There's no

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Speaker 1: question that when the US market has big movements, we

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Speaker 1: have a lot of interlinked risks around the world that

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Speaker 1: cause these markets to be much more correlated than they

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Speaker 1: used to be. Over time, there are big differences between

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Speaker 1: the performance of the emerging markets and the US market,

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Speaker 1: But on a short term basis, the correlations are pretty high.

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Speaker 1: So let's talk about those performance um metri. You look

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Speaker 1: at the trailing ten years, uh, and now we're so

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Speaker 1: it takes us back still through the financial crisis, US

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Speaker 1: markets have done very well, emerging markets not so much.

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Speaker 1: There seem to be signs that that's changing. Now, tell

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Speaker 1: us your thoughts on on the performance issue and how

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Speaker 1: long these cycles last. They seem to alternate a little bit,

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Speaker 1: don't they. It's hard to tell how long they last.

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Speaker 1: I mean, they seem to be often seven to ten

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Speaker 1: year periods that we see this. Your absolutely right, emerging

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Speaker 1: markets has underperformed the US over the last ten years. UM.

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Speaker 1: I think the biggest reason for that is that we've

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Speaker 1: been through a strong period where deflationary pressure has dominated markets,

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Speaker 1: and the emerging markets are just more economically sensitive than

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Speaker 1: the US. You know, if you think about the technology

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Speaker 1: sector French, big big area. In the US, there is

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Speaker 1: actually quite a big technology sector in emerging markets as well,

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Speaker 1: But you have a lot of industries that are very

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Speaker 1: economy sensitive. So in that in that last decade period,

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Speaker 1: that economic sensitivity has worked against the returns in emerging markets.

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Speaker 1: What about the dollar I I used to think, and

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Speaker 1: I'm changing my view someone on this. I used to

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Speaker 1: think of emerging markets as heavily commodity dependent and therefore

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Speaker 1: heavily dollar dependent. Is that still the case? And how

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Speaker 1: significant is the dollar to emerging markets performance? Well, the

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Speaker 1: commodity areas like energy materials are today relatively small parts

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Speaker 1: of emerging markets, around fifteen percent of our universe. How

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Speaker 1: does that compare to say, years ago, well even ten

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Speaker 1: years ago it was over Really that's a big change.

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Speaker 1: So it's a big change. It tends to fluctuate over

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Speaker 1: periods of time. Um, But I what what I would

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Speaker 1: say is that emerging markets as a whole are just

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Speaker 1: more dependent on economic growth than the developed world, and

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Speaker 1: so when when the world has difficulties with economic growth,

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Speaker 1: emerging markets tend to be negatively affected by it. So

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Speaker 1: that's an interesting contrast because I usually think of everybody

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Speaker 1: dependent on economic growth. When we have a recession, people

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Speaker 1: tend to spend less, less employments, profits are affected, It

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Speaker 1: affects markets. But what you're really saying is more nuanced

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Speaker 1: emerging markets are much more sensitive to the state of

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Speaker 1: the economy than Europe, of the US, or even Japan

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Speaker 1: for that matter. Is that is that a fair assessment?

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Speaker 1: I think that's fair. I think the the clear enemies

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Speaker 1: of emerging market equities are negative real economic growth and

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Speaker 1: or crises. So we've seen over the past year or

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Speaker 1: two the US dollar we can fairly dramatically after a

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Speaker 1: huge seven or nine you run and when we look

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Speaker 1: at performance of emerging markets versus Europe versus US, they

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Speaker 1: seem to have just edged out uh those areas on

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Speaker 1: a nominal basis. But for a US investor in dollars,

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Speaker 1: they had a booming year last year because of the

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Speaker 1: weakness of the dollar. How significant is the currency not

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Speaker 1: to the exports of commodities, but to the net performance

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Speaker 1: of e M two investors in the US well, emerging

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Speaker 1: market equities tend to have a natural negative correlation to

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Speaker 1: the dollar and week dollar strong EM week dollars strong

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Speaker 1: EM strong dollar week E MUH. That is, that is

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Speaker 1: a strong correlation, and indeed emerging markets tend to have

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Speaker 1: quite a strong correlation with commodity prices. Let's talk a

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Speaker 1: little bit about some of these varied UH differences between

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Speaker 1: emerging market countries in different parts of the world. When

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Speaker 1: I think about e M, I tend to think about

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Speaker 1: Asia and South America, and to a lesser degree UH

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Speaker 1: Southern Europe places like Turkey. Um, how different are all

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Speaker 1: these regions. One would imagine those three places are very,

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Speaker 1: very different economically and in terms of their markets. There

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Speaker 1: is tremendous variety across emerging markets. In Asia you have

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Speaker 1: large technology sectors, for instance, whereas you have a lot

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Speaker 1: more of a focus on commodities in parts of Latin

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Speaker 1: America and in parts of Eastern Europe like Russia or

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Speaker 1: South Africa. So very different countries, very different political systems,

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Speaker 1: tremendous variety. So when I think about different parts of

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Speaker 1: the world, I think of the US as fully or

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Speaker 1: even richly valued, Europe a little less richly valued. Emerging

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Speaker 1: markets relatively cheap compared to the other two. How do

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Speaker 1: you come up with valuation metrics for different parts of

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Speaker 1: the world when there's such different economies. If you're if

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Speaker 1: you're looking at China or Russia, or you're looking at

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Speaker 1: Brazil or Argentina. Can you apply the same sort of metrics.

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Speaker 1: What do you have to develop different tools for different economies? Well,

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Speaker 1: I would, I would agree with you. I actually come

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Speaker 1: at this from the perspective of thinking there are no

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Speaker 1: cheap asset classes today relative to their own history, but

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Speaker 1: emerging markets are relatively cheap to develop markets and to

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Speaker 1: the US market. From where I stand and uh, we

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Speaker 1: approach our analysis by focusing on stocks stocks that look

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Speaker 1: inexpensively valued and relatively profitable. We do a lot of

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Speaker 1: accounting analysis because we have around seventy analysts at Lazard

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Speaker 1: who are involved at looking at all types of different strategies,

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Speaker 1: and we make adjustments for accounting distortions where relevant, and

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Speaker 1: then we look forward towards the fundamentals for their businesses

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Speaker 1: and we then see according to the valuations if we

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Speaker 1: think the stocks are inexpensively priced or not. And then

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Speaker 1: at the end of our process will discount for certain

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Speaker 1: risks that include things like political risk and macroeconomic risk

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Speaker 1: and even governance risk. So so last year in the

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Speaker 1: United States, I think we could fairly safely say we

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Speaker 1: had one of the most politically unstable or certainly politically

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Speaker 1: volatile years we've seen, and yet the stock market was

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Speaker 1: utterly placid. It was very confounding to a lot of people.

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Speaker 1: Although history tells us politics and investing don't don't matter

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Speaker 1: that much in the United States. Can you apply that

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Speaker 1: same rule abroad or do you have genuine risk that

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Speaker 1: a government gets destabilized there are capital controls that come

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Speaker 1: in and suddenly the investment thesis for that country is

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Speaker 1: much more challenging than it was earlier. It's a very

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Speaker 1: good question, because I also was surprised last year in

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Speaker 1: the US that the market did not seem to be

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Speaker 1: affected by the noise, the political noise and the economic

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Speaker 1: noise out there in the world as a whole and

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Speaker 1: in the US. UM. I think it varies on situations,

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Speaker 1: but certainly there are political effects that we see in

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Speaker 1: emerging markets. A very good example right now is in

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Speaker 1: South Africa, where um a new leader of the African

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Speaker 1: National Congress, so Ramiphos, has come into power and where

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Speaker 1: there seemed to be sizeable changes of what politically that

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Speaker 1: are causing some quite big changes with the currency and

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Speaker 1: with the market in that country. What about um some

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Speaker 1: of the other countries where we've seen some either diplomatic

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Speaker 1: or geopolitical issues. You mentioned Russia is Russia and investible country.

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Speaker 1: We believe it is. It certainly is a place where

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Speaker 1: you have to take into account political risk because it

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Speaker 1: can have big, big effects on certain corporations, and there's

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Speaker 1: some degree of judgment in how we look at that. UM.

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Speaker 1: It's also a place where we tend to see risks

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Speaker 1: associated with governance in some companies. So those are big,

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Speaker 1: big factors in Russia, but we do think that there's

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Speaker 1: reasonable protection in most companies in Russia. What about India?

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Speaker 1: We talked about China earlier, and you mentioned Indian passing

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Speaker 1: a giant country by population, a big technology center. What

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Speaker 1: are we to make of India's perennial sense of being

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Speaker 1: on the verge of of great things happening and then

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Speaker 1: nothing seems to really gain any traction. Well, I think

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Speaker 1: India is very exciting right now. You've got a prime

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Speaker 1: minister in Mr Modi who doesn't really have to answer

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Speaker 1: to anyone. Even the leaders of his own party were

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Speaker 1: not in favor of him being prime minister. He appears

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Speaker 1: to be very, very courageous. Ah, he's willing to do

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Speaker 1: things like um, removing the largest denominations of currencies and

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Speaker 1: making big, big changes in the civil service. So um,

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Speaker 1: what what is exciting is he's he's tackling the bureaucracy

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Speaker 1: of that country, knowing that there's a huge young population

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Speaker 1: with I think about a million people going into the

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Speaker 1: workforce every month, and he needs to prepare that country

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Speaker 1: for UM a much more developed type of economic system.

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Speaker 1: What are the country is sort of underappreciated or overlooked

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Speaker 1: in the world of m Well, of course, I mean

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Speaker 1: every country has its own issues. I mean India, for instance,

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Speaker 1: is actually I wouldn't say a terribly inexpensive market. We

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Speaker 1: do find opportunities there, but it in general is not

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Speaker 1: an inexpensive market. Um. The areas that that we think

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Speaker 1: are are relatively underappreciated include Russia, include some stocks in Brazil, Turkey,

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Speaker 1: Indonesia for instance, UM and and to some degree South

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Speaker 1: Africa right now, but again we find opportunities in many

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Speaker 1: many markets across the emerging markets. Let's let's talk a

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Speaker 1: little bit about putting those seventy analysts to work in

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Speaker 1: the emerging market space. How important is to have the

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Speaker 1: I know it's a cliche, but how important is it

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Speaker 1: to physically be located in some of these countries and

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Speaker 1: see firsthand what's going on. I think it's vital two

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Speaker 1: go and see activities in all of these countries. I

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Speaker 1: don't think it's necessary to actually be there all the time,

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Speaker 1: but I think it's very very critical to travel to

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Speaker 1: get updates, to see what's changing in these markets on

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Speaker 1: a very very regular basis, because if you're not seeing

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Speaker 1: it fairly regularly, you're perhaps not understanding opportunities or risks

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Speaker 1: that are coming up in these markets. So you're racking

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Speaker 1: up a million frequent flyer miles a year or you

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Speaker 1: more New York based, Uh, not a million, but a

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Speaker 1: good portion of that. And pretty much all of our

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Speaker 1: analysts are traveling heavily around the emerging market world to

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Speaker 1: see opportunities on an ongoing basis. So let's talk a

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Speaker 1: little bit about market efficiency. You know, there's only so

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Speaker 1: much any of us can do to beat large cap

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Speaker 1: US stocks. It seems a ton of information is known,

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Speaker 1: there are no real advantages to picking this company over that,

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Speaker 1: or so it seems in the US. Do you have

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Speaker 1: that same level of market efficiency in emerging markets specifically,

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Speaker 1: is information is freely available? Are there advantages that can

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Speaker 1: be had from your own analysis, in your own data gathering.

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Speaker 1: How does EM differ from you know, the SMP five

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Speaker 1: hundred in terms of potentially producing market beating results. Well,

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Speaker 1: I think indexing is a perfectly viable, tactical, and often

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Speaker 1: short term solution. UM. But one of the interesting things

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Speaker 1: is that in emerging markets, over longer periods of time,

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Speaker 1: the median manager tends to beat the index. And so

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Speaker 1: I think informational efficiency is less good in the emerging markets,

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Speaker 1: and there aren't necessarily a huge amount of analysts in

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Speaker 1: emerging markets. Overall, it's nothing like the US, and so

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Speaker 1: actually going and understanding these companies and utilizing certain strategies

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Speaker 1: for investing UM, I think can produce good results in

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Speaker 1: comparison with the index over longer term periods of time. So, um,

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Speaker 1: it's a bit more work. I think one has to

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Speaker 1: be creative, but I think one can construct portfolios using

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Speaker 1: perhaps different investing methodologies and emerging markets that can provide

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Speaker 1: a very strong performance in the long term. So, so

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Speaker 1: let's talk about constructing those portfolios and discuss a little

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Speaker 1: bit of of process. Um, you manage a team that's

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Speaker 1: a lot of analysts, I assume a bunch of traders,

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Speaker 1: a number of other support process and I'm guessing this

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Speaker 1: investment committee on the top of that whole pyramid. What

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Speaker 1: is the process like thinking about creating a new portfolio

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Speaker 1: making changes to existing portfolios? Tell us how you you

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Speaker 1: think about these things? Well, the way we're uh organized

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Speaker 1: at Lazard is that we actually have twelve different emerging

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Speaker 1: market teams, anywhere from fixed income to currencies, to fund

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Speaker 1: of funds to equities. We're almost like a collection of boutiques,

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Speaker 1: and all the strategies are different. So in equities, for example,

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Speaker 1: we have four different equity strategies. We have a quantitative one,

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Speaker 1: we have a relative value one, which is where I

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Speaker 1: spend most of my time. We have a growth at

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Speaker 1: a reasonable price one, and we have a core one.

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Speaker 1: So a whole lot of different things. It's almost like

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Speaker 1: a menu with four different um food plates, and people

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Speaker 1: can decide, based upon their objectives, what they what type

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Speaker 1: of journey they would like to go on. So that's GARP, quants,

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Speaker 1: relative value, and core and core. Is there a much

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Speaker 1: overlap between them or by design, they're all very by design,

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Speaker 1: they're quite different portfolios. The overlap is relatively limited, and

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Speaker 1: they will produce different types of results for investors over time.

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Speaker 1: And you mentioned fixed income. I'm under the impression that

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Speaker 1: fixed income overseas is a little bit of a challenge,

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Speaker 1: and fixed income in emerging markets is a very very

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Speaker 1: different animal than what we used to here in the

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Speaker 1: United States. It is very different from the US um

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Speaker 1: you really have a number of different fixed income areas

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Speaker 1: in emerging markets. You have hard currency debt, which which

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Speaker 1: has been a very very strong area. You have local

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Speaker 1: currency that until recently has been relatively weak. Uh. And

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Speaker 1: then you tend to get strategies that mix the two.

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Speaker 1: And you also have quite a significant corporate debt universe

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Speaker 1: as well. And you reference currencies as a group. How

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Speaker 1: significant does currency hedging become when you're investing in various

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Speaker 1: countries or do you not bother with currency hedging and

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Speaker 1: saying eventually it all evens out in the wash? In

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Speaker 1: fixed income, currency hedging happens a significant amount. I would

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Speaker 1: say inequities. UM, we can hedge currencies, in practice, we

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Speaker 1: don't tend to do it that much. It's it's quite

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Speaker 1: expensive and it's quite easy to get the time periods wrong.

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Speaker 1: We tend to embed it in our target prices UM

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Speaker 1: by analyzing what risks we think the currency or macroeconomic

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Speaker 1: factors in general might mean for the actual profitability of

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Speaker 1: the company. So you could reduce your expected returns in

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Speaker 1: a given space thinking currency is a risk factor for

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Speaker 1: this area. Correct that that that's quite intriguing you. You

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Speaker 1: also mentioned you have a relative valuation funds. Let's let's

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Speaker 1: talk a little bit about relative valuation in the emerging

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Speaker 1: market space. How do you think of EM valuations? Is

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Speaker 1: it always relative between countries? Are you looking at the

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Speaker 1: group relative to developed uh nations? Or you mentioned earlier

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Speaker 1: you can look at different asset classes relative to their

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Speaker 1: own history. What do you do a little bit of

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Speaker 1: everything In the way we invest, we tend to look

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Speaker 1: at the actual stocks and their valuations, and in a

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Speaker 1: relative value world, we tend to look at it relative

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Speaker 1: to the profitability of the companies. In a growth and

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Speaker 1: a reasonable price type of strategy, we tend to look

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Speaker 1: at valuations relative to earnings per share growth rates. UM

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Speaker 1: As a whole, will will look at the universe and

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Speaker 1: will compare the universe and emerging markets to develop markets. Today,

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Speaker 1: the price earnings ratio of emerging markets as a whole

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Speaker 1: is at about a thirty discount to that of developed markets.

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Speaker 1: That's that's pretty substantial. Do you think those will eventually converge?

433
00:30:39,480 --> 00:30:44,080
Speaker 1: I think there's a good chance with the economic scenario

434
00:30:44,200 --> 00:30:47,840
Speaker 1: we're seeing now accelerating growth around the world from a

435
00:30:47,960 --> 00:30:51,560
Speaker 1: very low base. That's that's usually a positive thing for

436
00:30:51,600 --> 00:30:58,400
Speaker 1: emerging markets, and we're anticipating the likelihood of increasing profitability

437
00:30:58,480 --> 00:31:02,920
Speaker 1: for emerging market stocks relative to develop market stocks. If

438
00:31:02,960 --> 00:31:06,800
Speaker 1: those things happen, I think we could see significantly lower

439
00:31:06,880 --> 00:31:11,840
Speaker 1: discounts invaluation. So take me through your process a little bit,

440
00:31:11,880 --> 00:31:14,960
Speaker 1: because there are so many moving parts here. I'm trying

441
00:31:15,000 --> 00:31:18,320
Speaker 1: to get a handle on what is the decision making

442
00:31:18,360 --> 00:31:22,800
Speaker 1: process like when you're is it top down as it

443
00:31:22,840 --> 00:31:26,080
Speaker 1: bottoms up? Is it both? Because I sort of hearing

444
00:31:26,520 --> 00:31:29,680
Speaker 1: you guys are really more specifically stock pickers in each

445
00:31:29,720 --> 00:31:33,920
Speaker 1: country as opposed to Hey, from a top down view,

446
00:31:34,160 --> 00:31:36,960
Speaker 1: we think Asia is attractive, but maybe South America not

447
00:31:37,080 --> 00:31:39,719
Speaker 1: so much, So our tilt goes that way or am

448
00:31:39,720 --> 00:31:42,480
Speaker 1: I am I just getting that wrong? No, You're exactly right.

449
00:31:42,720 --> 00:31:46,720
Speaker 1: And most of our strategies are more bottom up than

450
00:31:46,760 --> 00:31:52,320
Speaker 1: top down, so we tend to start by identifying what

451
00:31:52,400 --> 00:31:58,880
Speaker 1: looked like compellingly attractive stocks. Evaluation almost always plays some

452
00:31:58,960 --> 00:32:02,840
Speaker 1: sort of role, as do fundamentals. In the relative value

453
00:32:02,840 --> 00:32:07,040
Speaker 1: strategy that I'm most involved with, we are attracted to

454
00:32:07,120 --> 00:32:12,160
Speaker 1: stocks that are inexpensively priced and have had pretty good

455
00:32:12,160 --> 00:32:19,400
Speaker 1: profitability m We then look closely at their financial statements

456
00:32:20,160 --> 00:32:22,840
Speaker 1: and footnotes to see if there are distortions that are

457
00:32:22,880 --> 00:32:26,320
Speaker 1: caused by that, and adjust for any distortions that we

458
00:32:26,360 --> 00:32:32,920
Speaker 1: think are material. If the stock is still compellingly attractive, well,

459
00:32:32,960 --> 00:32:36,280
Speaker 1: then look into the future into the next three or

460
00:32:36,320 --> 00:32:42,240
Speaker 1: four years and try and forecast the fundamentals, particularly the profitability,

461
00:32:42,320 --> 00:32:46,680
Speaker 1: and derive a price target for that, and if there's

462
00:32:46,760 --> 00:32:50,800
Speaker 1: enough upside then to go onto the last step. That's

463
00:32:50,840 --> 00:32:53,960
Speaker 1: where we look at some of these other type of

464
00:32:54,000 --> 00:32:58,240
Speaker 1: factors like macroeconomic and political risk and governance risk as well,

465
00:32:58,520 --> 00:33:02,479
Speaker 1: very important for us, and discount for those and at

466
00:33:02,480 --> 00:33:06,120
Speaker 1: the end of the day, see if we have upsides

467
00:33:06,360 --> 00:33:09,840
Speaker 1: that are competitive with what we already have in our portfolio. So,

468
00:33:09,880 --> 00:33:13,600
Speaker 1: since valuation drive stock pickings to such a large degree,

469
00:33:14,280 --> 00:33:16,960
Speaker 1: do you ever find yourself stepping back and looking at

470
00:33:17,040 --> 00:33:20,600
Speaker 1: the overall portfolio and saying, I'm gonna make up a

471
00:33:20,600 --> 00:33:23,000
Speaker 1: couple of countries. But gee, we have a lot of

472
00:33:23,280 --> 00:33:27,520
Speaker 1: Turkey and Vietnam stocks and we have almost no stocks

473
00:33:27,560 --> 00:33:31,560
Speaker 1: from Mexico or Thailand. I'm just making these things up.

474
00:33:31,880 --> 00:33:35,920
Speaker 1: But if valuation is a key driver, can you end

475
00:33:36,000 --> 00:33:41,160
Speaker 1: up with sort of a lumpy distribution of stocks by country?

476
00:33:41,840 --> 00:33:47,760
Speaker 1: You can end up with quite different exposures in different countries. Um,

477
00:33:47,800 --> 00:33:53,680
Speaker 1: and uh, we don't have to invest in any given country,

478
00:33:53,800 --> 00:33:56,280
Speaker 1: so you have no mandate that, hey, I want to

479
00:33:56,440 --> 00:34:00,400
Speaker 1: percent across the board and no more than of this country. Well,

480
00:34:00,440 --> 00:34:02,760
Speaker 1: we have limits on what we can have in a

481
00:34:02,800 --> 00:34:08,160
Speaker 1: given country, so we can't have. UM. You know, I

482
00:34:08,200 --> 00:34:12,319
Speaker 1: think it's very unlikely we're going to have positions in

483
00:34:12,640 --> 00:34:16,000
Speaker 1: five or six countries and nowhere else. That's that's really

484
00:34:16,520 --> 00:34:19,840
Speaker 1: We've never had a situation like that. We've always pretty

485
00:34:19,920 --> 00:34:25,840
Speaker 1: much been invested in something like fifteen countries and emerging

486
00:34:25,880 --> 00:34:32,439
Speaker 1: markets sometimes but so so we haven't really had that issue. Um,

487
00:34:32,480 --> 00:34:35,400
Speaker 1: but there are times when some countries are just not

488
00:34:35,520 --> 00:34:38,360
Speaker 1: attractive for us and we'll have nothing there. We have

489
00:34:38,560 --> 00:34:42,759
Speaker 1: been speaking with James Donald of Lazard Asset Management. If

490
00:34:42,800 --> 00:34:45,759
Speaker 1: you enjoy this conversation, be showing and stick around for

491
00:34:45,800 --> 00:34:48,600
Speaker 1: the podcast. As trus will we keep the tape rolling

492
00:34:48,640 --> 00:34:52,279
Speaker 1: and continue discussing all things emerging market. Be shure and

493
00:34:52,360 --> 00:34:55,239
Speaker 1: check out my daily column on Bloomberg View dot com.

494
00:34:55,320 --> 00:34:58,799
Speaker 1: You can follow me on Twitter at Ridolts. We love

495
00:34:58,840 --> 00:35:03,120
Speaker 1: your comments, feed back, end suggestions right to us at

496
00:35:03,480 --> 00:35:07,400
Speaker 1: m IB podcast at Bloomberg dot net. I'm Barry Hults.

497
00:35:07,440 --> 00:35:23,840
Speaker 1: You're listening to Master's in Business on Bloomberg Radio. Welcome

498
00:35:23,880 --> 00:35:26,200
Speaker 1: to the podcast, James, Thank you so much for doing this.

499
00:35:26,200 --> 00:35:30,560
Speaker 1: This is an area I find absolutely fascinating and in

500
00:35:30,560 --> 00:35:34,520
Speaker 1: in my shop. In the beginning of Seen, we changed

501
00:35:34,520 --> 00:35:38,160
Speaker 1: our tilts a little more aggressively towards e M from

502
00:35:38,160 --> 00:35:41,240
Speaker 1: the US, and then we did it again. Uh. In

503
00:35:41,400 --> 00:35:45,520
Speaker 1: the beginning of nothing huge, just a couple of percentage

504
00:35:45,640 --> 00:35:48,239
Speaker 1: points here and there. But like you, we look at

505
00:35:48,320 --> 00:35:53,400
Speaker 1: valuation and think that's a key determiner of of future returns.

506
00:35:54,160 --> 00:35:57,920
Speaker 1: There's a bunch of questions on value. I didn't I

507
00:35:57,960 --> 00:35:59,640
Speaker 1: didn't get to that. I want to. I want to

508
00:35:59,719 --> 00:36:03,359
Speaker 1: come back to but before I do that, I have

509
00:36:03,480 --> 00:36:06,239
Speaker 1: to just talk about some numbers a little bit. So

510
00:36:06,320 --> 00:36:09,680
Speaker 1: when we look at at the population of the emerging

511
00:36:09,760 --> 00:36:14,680
Speaker 1: market countries, it's something like half of the global people,

512
00:36:14,840 --> 00:36:18,080
Speaker 1: half the global population, but in terms of market cap

513
00:36:18,600 --> 00:36:23,319
Speaker 1: it's tiny, it's it's ten. Are those two eventually going

514
00:36:23,360 --> 00:36:26,719
Speaker 1: to converge? Are we going to see a greater waiting

515
00:36:28,000 --> 00:36:32,879
Speaker 1: of emerging markets or as these countries or as these

516
00:36:32,920 --> 00:36:36,120
Speaker 1: countries mature, some of them are going to start to

517
00:36:36,320 --> 00:36:39,960
Speaker 1: move into the developed nations side of the ledger. You'll

518
00:36:39,960 --> 00:36:43,120
Speaker 1: probably see a combination of those things. I would I

519
00:36:43,160 --> 00:36:47,000
Speaker 1: would guess I think it's some stage, probably not in

520
00:36:47,000 --> 00:36:49,160
Speaker 1: the immediate term, but you're going to see some of

521
00:36:49,200 --> 00:36:52,880
Speaker 1: these countries like South Korea and Taiwan move into the

522
00:36:52,920 --> 00:36:59,080
Speaker 1: developed world UM and uh An all likelihood, I think

523
00:36:59,719 --> 00:37:02,520
Speaker 1: that will be more and more companies in emerging markets,

524
00:37:03,440 --> 00:37:06,360
Speaker 1: and you'll see the growth of those markets as a

525
00:37:06,400 --> 00:37:12,200
Speaker 1: percentage of total market capitalization. So South Korea, Taiwan, UM.

526
00:37:12,239 --> 00:37:15,120
Speaker 1: When I think of some of the more developed emerging

527
00:37:15,200 --> 00:37:21,480
Speaker 1: market countries, Turkey, Vietnam, I always want to say Australia,

528
00:37:21,520 --> 00:37:24,960
Speaker 1: but I know, I know they're not technically an emerging

529
00:37:25,000 --> 00:37:29,880
Speaker 1: market country. Who is the next tier below South Korea

530
00:37:30,000 --> 00:37:33,600
Speaker 1: and Taiwan. Israel is another name that comes Israel is

531
00:37:33,640 --> 00:37:36,080
Speaker 1: actually it actually made the move a number of years

532
00:37:36,080 --> 00:37:42,400
Speaker 1: ago into the developed world. Mexico is a possibility, UM

533
00:37:42,480 --> 00:37:47,240
Speaker 1: and it's it's a reasonably well developed country and market,

534
00:37:47,920 --> 00:37:51,040
Speaker 1: so that that is a possible mover. How about anyone

535
00:37:51,120 --> 00:37:55,520
Speaker 1: from South America? I think it probably will take a

536
00:37:55,560 --> 00:38:00,160
Speaker 1: little longer, but Chili would be definitely the contender. I

537
00:38:00,200 --> 00:38:03,800
Speaker 1: think there it's been pretty successful economy and a pretty

538
00:38:03,800 --> 00:38:09,839
Speaker 1: successful market. That's intriguing. UM. And we talked about valuation

539
00:38:09,840 --> 00:38:14,480
Speaker 1: and e M relative to history. UM. What emerging market

540
00:38:14,560 --> 00:38:19,319
Speaker 1: countries do you think are uninvestable these days? Well, that's

541
00:38:19,360 --> 00:38:22,080
Speaker 1: something we look at very very regularly. We look at

542
00:38:22,120 --> 00:38:26,080
Speaker 1: what sort of protection we think there is for investors.

543
00:38:27,080 --> 00:38:31,919
Speaker 1: The best example of an uninvestable emerging market has really

544
00:38:31,960 --> 00:38:36,360
Speaker 1: been Venezuela, which has had terrible, terrible problems, as you know, inflation,

545
00:38:36,480 --> 00:38:41,560
Speaker 1: political instability to a large degree cause by politics and UM.

546
00:38:41,600 --> 00:38:44,680
Speaker 1: In two thousand five, two thousand six, basically the government

547
00:38:44,719 --> 00:38:48,400
Speaker 1: said it was going to buy a lot of the

548
00:38:48,440 --> 00:38:52,040
Speaker 1: public relisted stocks and just give us a value they

549
00:38:52,080 --> 00:38:56,120
Speaker 1: thought made sense. There was no real protection for investors

550
00:38:56,160 --> 00:39:02,040
Speaker 1: there so they deprivatize companies effectively, and we'll tell you

551
00:39:02,080 --> 00:39:04,640
Speaker 1: what we think it's worth effectively. I gave us an

552
00:39:04,719 --> 00:39:08,960
Speaker 1: arbitrary value for that. So really we felt that is

553
00:39:09,000 --> 00:39:12,959
Speaker 1: that is the best example of an uninvestable country. What's

554
00:39:13,000 --> 00:39:15,840
Speaker 1: it going to take for them to rehabilitate that image

555
00:39:16,200 --> 00:39:19,359
Speaker 1: other than a full regime change? I think, I think

556
00:39:19,400 --> 00:39:22,560
Speaker 1: a full regime change is the only is the only

557
00:39:22,600 --> 00:39:24,200
Speaker 1: thing that is going to change. I mean, I spent

558
00:39:24,320 --> 00:39:27,720
Speaker 1: a lot of time in Venezuela in the early nineteen nineties,

559
00:39:28,040 --> 00:39:31,200
Speaker 1: and they made a lot of progress. At one point, well,

560
00:39:31,239 --> 00:39:35,279
Speaker 1: there were some there were some very very well run companies,

561
00:39:35,560 --> 00:39:40,160
Speaker 1: and Pitavisa, the big oil company, was always known as

562
00:39:40,160 --> 00:39:43,520
Speaker 1: a company that was that had experts and was well managed.

563
00:39:43,960 --> 00:39:48,160
Speaker 1: But unfortunately quite a lot of that seems to have

564
00:39:48,280 --> 00:39:52,640
Speaker 1: changed now. So now let's um let me change us

565
00:39:52,680 --> 00:39:56,520
Speaker 1: up a little bit. During the European crisis, we saw

566
00:39:57,360 --> 00:40:02,160
Speaker 1: accusations that a number of countries that were considered part

567
00:40:02,239 --> 00:40:06,600
Speaker 1: of the EU and considered developed nations really could have

568
00:40:06,680 --> 00:40:10,240
Speaker 1: been on the emerging market side of of the line.

569
00:40:10,760 --> 00:40:13,680
Speaker 1: And the example that comes up time and again is Greece.

570
00:40:13,880 --> 00:40:17,320
Speaker 1: Was Greece really a full developed nation and was it

571
00:40:17,440 --> 00:40:25,040
Speaker 1: comparable to its other European Union colleagues. Unfortunately, the situation

572
00:40:25,120 --> 00:40:28,120
Speaker 1: that has fallen Greece has been a tragedy. It was

573
00:40:28,160 --> 00:40:32,960
Speaker 1: an emerging market country, then it joined the EU and

574
00:40:34,200 --> 00:40:38,160
Speaker 1: essentially got a lot of EU fiscal aid and and

575
00:40:38,280 --> 00:40:41,799
Speaker 1: low rates and infinite borrowing from Germany, and that has

576
00:40:41,960 --> 00:40:46,799
Speaker 1: that has really compromised the economy and the indebtedness of

577
00:40:46,880 --> 00:40:49,120
Speaker 1: the country has gone up dramatically. It's now back in

578
00:40:49,200 --> 00:40:53,200
Speaker 1: emerging markets and I would say we're waiting to see

579
00:40:54,280 --> 00:41:00,440
Speaker 1: if the plans, the economic plans for Greece can rehabilitate

580
00:41:00,520 --> 00:41:05,160
Speaker 1: the country, particularly the banks which have very, very high

581
00:41:05,200 --> 00:41:09,360
Speaker 1: non performing loans. But if if the economic plans can work,

582
00:41:10,080 --> 00:41:14,080
Speaker 1: then perhaps Greece can come back. It's a very sad story.

583
00:41:14,160 --> 00:41:16,520
Speaker 1: A lot of the companies that I've seen over years

584
00:41:17,080 --> 00:41:20,480
Speaker 1: have have had terrible problems through this, and in many

585
00:41:20,480 --> 00:41:23,880
Speaker 1: ways it might have been a better thing if Greece

586
00:41:23,920 --> 00:41:28,080
Speaker 1: had never uh put the Euro as its kind of

587
00:41:28,160 --> 00:41:30,839
Speaker 1: as its currency. I was in Greece two summers ago

588
00:41:30,920 --> 00:41:33,239
Speaker 1: and I'm just struck by what a beautiful country that

589
00:41:33,320 --> 00:41:36,439
Speaker 1: people are lovely, But you're getting a tourists eye view,

590
00:41:36,560 --> 00:41:41,560
Speaker 1: not necessarily a economists eye view, and it feels like

591
00:41:41,600 --> 00:41:44,440
Speaker 1: a European country. It feels like a developed country. You

592
00:41:44,600 --> 00:41:49,120
Speaker 1: just the apparently the financial infrastructure simply isn't there compared

593
00:41:49,200 --> 00:41:52,200
Speaker 1: to the rest of Europe. Well, it had excellent banks

594
00:41:52,960 --> 00:41:56,640
Speaker 1: in in the period in the ninety nineties, UM, some

595
00:41:56,880 --> 00:42:04,239
Speaker 1: very very well run banks. But when indebtedness increased enormously

596
00:42:04,320 --> 00:42:09,640
Speaker 1: and wasn't really kept properly in the economic pitch in

597
00:42:09,640 --> 00:42:13,560
Speaker 1: in the economic figures of the country, UM, it was

598
00:42:13,600 --> 00:42:16,319
Speaker 1: a big negative surprise, and of course no one, no

599
00:42:16,360 --> 00:42:18,399
Speaker 1: one wanted to be involved with the country at all.

600
00:42:18,640 --> 00:42:22,720
Speaker 1: Now with hindsight, looking back, it seems absurd that banks

601
00:42:22,760 --> 00:42:25,560
Speaker 1: in Greece and the government of Greece could borrow at

602
00:42:25,560 --> 00:42:29,319
Speaker 1: the same rate as banks in France or Germany. But

603
00:42:29,640 --> 00:42:32,120
Speaker 1: I guess that's the problem with too much easy money

604
00:42:32,360 --> 00:42:34,680
Speaker 1: that I think is the problem. So we we always

605
00:42:34,760 --> 00:42:39,880
Speaker 1: used to talk about the pigs Portugal, Italy, Greece and Spain. Um,

606
00:42:40,160 --> 00:42:45,600
Speaker 1: are any of those other southern European countries really at risk?

607
00:42:46,160 --> 00:42:49,080
Speaker 1: For where should they these countries be placed? Should they

608
00:42:49,120 --> 00:42:53,200
Speaker 1: be developed nations or or emerging markets? From what I

609
00:42:53,320 --> 00:42:58,040
Speaker 1: understand with those four countries, they have worked pretty hard

610
00:42:58,760 --> 00:43:03,280
Speaker 1: on mending their their fiscal situations, in their economic condition,

611
00:43:03,840 --> 00:43:06,520
Speaker 1: and so I don't think they will be emerging markets

612
00:43:07,200 --> 00:43:10,279
Speaker 1: um those four. Portugal is probably the closest, but I

613
00:43:10,320 --> 00:43:13,000
Speaker 1: think I think they've all done a lot of very

614
00:43:13,040 --> 00:43:15,640
Speaker 1: important work in the last six or seven years. I mean,

615
00:43:15,680 --> 00:43:18,839
Speaker 1: it's hard to imagine Italy as an emerging market given

616
00:43:18,880 --> 00:43:22,000
Speaker 1: their history and everything else. And I was just in

617
00:43:22,080 --> 00:43:26,000
Speaker 1: Spain in October and I can't say enough about how

618
00:43:26,040 --> 00:43:30,200
Speaker 1: delightful everything from the food to the people. But again

619
00:43:30,239 --> 00:43:32,799
Speaker 1: it's a tourist side view. You're not seeing the dark

620
00:43:32,880 --> 00:43:36,600
Speaker 1: underside um. And then let's talk a little bit about China,

621
00:43:36,719 --> 00:43:40,919
Speaker 1: because that is such a fascinating growth story in such

622
00:43:40,920 --> 00:43:45,799
Speaker 1: a fascinating country over the past three decades. What's the

623
00:43:45,880 --> 00:43:49,359
Speaker 1: line in the sand where China crosses over from e

624
00:43:49,520 --> 00:43:53,560
Speaker 1: M to developed. Well, I think there's some way yet

625
00:43:53,600 --> 00:43:57,240
Speaker 1: to get to that line. One of the big changes

626
00:43:57,280 --> 00:44:03,439
Speaker 1: that's happening this year is that the main indices will

627
00:44:03,480 --> 00:44:09,120
Speaker 1: all have China a share some mainland traded shares in China,

628
00:44:09,360 --> 00:44:15,400
Speaker 1: and the capital markets in China are increasingly converging with

629
00:44:15,440 --> 00:44:17,440
Speaker 1: global capital markets. We still have quite a lot of

630
00:44:17,440 --> 00:44:21,320
Speaker 1: work to do on the on the debt side in China.

631
00:44:21,560 --> 00:44:25,480
Speaker 1: But this A share inclusion in the MSc I index,

632
00:44:26,040 --> 00:44:28,880
Speaker 1: I think is a major major event. So to to

633
00:44:29,000 --> 00:44:31,200
Speaker 1: put to explain that a little bit. If you are

634
00:44:31,600 --> 00:44:34,680
Speaker 1: a non China residents, if you're overseas, you go to

635
00:44:34,719 --> 00:44:38,120
Speaker 1: Hong Kong, you're buying B shares, not A shares. There

636
00:44:38,200 --> 00:44:41,520
Speaker 1: isn't the same arbitrage situation that keeps them lined up.

637
00:44:41,600 --> 00:44:44,880
Speaker 1: Sometimes you're paying a premium, you're not getting the same

638
00:44:44,920 --> 00:44:47,600
Speaker 1: exact thing, the same exact rights. Is that going to

639
00:44:47,680 --> 00:44:49,680
Speaker 1: go away and we're all going to be able to

640
00:44:49,719 --> 00:44:52,319
Speaker 1: buy A shares? Is that the expectation as long as

641
00:44:52,400 --> 00:44:54,640
Speaker 1: you have an ability to do it through the connect

642
00:44:54,680 --> 00:44:56,959
Speaker 1: system in Hong Kong, you could be able to buy

643
00:44:57,440 --> 00:45:02,920
Speaker 1: Shanghai or Shenzen listed A shares in that market to

644
00:45:03,040 --> 00:45:07,240
Speaker 1: a large degree within those indicries. And it's worth remembering

645
00:45:07,320 --> 00:45:11,600
Speaker 1: the A share market is, you know, if you take

646
00:45:11,600 --> 00:45:16,480
Speaker 1: the full market, is the second biggest stock market in

647
00:45:16,600 --> 00:45:19,320
Speaker 1: terms of market capitalization in the world. So our B

648
00:45:19,480 --> 00:45:22,719
Speaker 1: share is going to go away. I'm not sure if

649
00:45:22,719 --> 00:45:25,839
Speaker 1: they're going to go away, but possibly over time they will.

650
00:45:26,360 --> 00:45:29,560
Speaker 1: So China has been growing well for a while. It

651
00:45:29,640 --> 00:45:33,040
Speaker 1: was ten percent, twelve percent. Now we're in the seven percent.

652
00:45:33,520 --> 00:45:35,960
Speaker 1: Not that that's too chevy. We're hoping to grow at

653
00:45:36,000 --> 00:45:38,640
Speaker 1: three percent. In the US, we'd kill for seven percent.

654
00:45:39,840 --> 00:45:42,759
Speaker 1: What happens to China's economy as they mature and what

655
00:45:42,800 --> 00:45:46,960
Speaker 1: does that mean for their share market? Well, it's easier

656
00:45:47,000 --> 00:45:51,480
Speaker 1: for rudimentary economies to grow rapidly because there's a catch

657
00:45:51,560 --> 00:45:56,719
Speaker 1: up process with the developed world, and so over the

658
00:45:56,800 --> 00:46:01,239
Speaker 1: last thirty years or so, the growth is very impressive,

659
00:46:01,600 --> 00:46:04,759
Speaker 1: but it's been naturally coming down because the catch up

660
00:46:04,840 --> 00:46:07,720
Speaker 1: is less and less. You're starting from such a tiny bass,

661
00:46:07,719 --> 00:46:12,600
Speaker 1: it's easy to grow. But now they're almost as larger

662
00:46:12,800 --> 00:46:16,799
Speaker 1: an economy as as the US, and some measures larger. Yeah,

663
00:46:16,840 --> 00:46:18,560
Speaker 1: I think it's less big than the US, but it's

664
00:46:18,719 --> 00:46:21,840
Speaker 1: it's been growing much faster, and it has the potential

665
00:46:22,440 --> 00:46:25,960
Speaker 1: one day to be as big as the US. Um

666
00:46:26,000 --> 00:46:29,560
Speaker 1: I think. You know. The interesting thing is that last

667
00:46:29,640 --> 00:46:34,440
Speaker 1: year at the Chinese Party Congress UH they didn't actually

668
00:46:34,480 --> 00:46:37,040
Speaker 1: come out with the target growth rate. It had been

669
00:46:37,080 --> 00:46:42,200
Speaker 1: around six and a half percent. This all has a

670
00:46:42,200 --> 00:46:45,000
Speaker 1: lot to do with s Jing Ping, the president, and

671
00:46:45,760 --> 00:46:49,880
Speaker 1: consolidation of his power. UM. But the fact that they

672
00:46:49,880 --> 00:46:52,560
Speaker 1: haven't got a target growth rate I think is important

673
00:46:53,080 --> 00:46:57,080
Speaker 1: because perhaps it takes pressure off Jing Ping and the

674
00:46:57,160 --> 00:46:59,759
Speaker 1: and the leadership to some degree. I think there's also

675
00:46:59,840 --> 00:47:05,520
Speaker 1: a wish in China to have better quality of growth

676
00:47:05,640 --> 00:47:09,040
Speaker 1: and not just simply higher growth. Let's get into some

677
00:47:09,080 --> 00:47:11,560
Speaker 1: of the details there that that's really interesting. How do

678
00:47:11,600 --> 00:47:15,200
Speaker 1: you define better quality? How do they define better quality?

679
00:47:15,239 --> 00:47:19,000
Speaker 1: What are they looking to see from their economy going forward?

680
00:47:19,080 --> 00:47:21,800
Speaker 1: What areas do they want to see more growth in,

681
00:47:21,880 --> 00:47:24,480
Speaker 1: and what are they leaving behind? I think they probably

682
00:47:24,520 --> 00:47:28,640
Speaker 1: mean better diversified growth. I think they probably mean more

683
00:47:28,680 --> 00:47:33,560
Speaker 1: technology and more modern industries and not just the big

684
00:47:33,640 --> 00:47:41,200
Speaker 1: industrial old style industries. UM. They've also indicated that they

685
00:47:41,239 --> 00:47:46,520
Speaker 1: would like to see less financial leverage in the economy,

686
00:47:46,520 --> 00:47:49,520
Speaker 1: in the industrial sectors of the economy as well. Now,

687
00:47:49,800 --> 00:47:54,760
Speaker 1: aren't most of the major financial centers and big banks

688
00:47:54,800 --> 00:47:59,560
Speaker 1: there either somewhat or partly or fully state owned. If

689
00:47:59,600 --> 00:48:03,800
Speaker 1: they want less leverage, can't they just dial back their leverage?

690
00:48:04,120 --> 00:48:06,960
Speaker 1: It seems sort of odd to hear that said we

691
00:48:07,040 --> 00:48:09,640
Speaker 1: want less leverage, Well, you guys are in charge of it.

692
00:48:10,880 --> 00:48:15,600
Speaker 1: That is correct, But on the other hand, um China

693
00:48:15,719 --> 00:48:18,080
Speaker 1: has changed a great deal in the last thirty years,

694
00:48:18,920 --> 00:48:25,440
Speaker 1: but there are still old style effects from the communist period. So,

695
00:48:25,560 --> 00:48:30,960
Speaker 1: for instance, state owned enterprises companies that are wholly owned

696
00:48:31,120 --> 00:48:35,400
Speaker 1: or are still majority controlled by the state or different

697
00:48:35,400 --> 00:48:40,359
Speaker 1: government bodies in some cases, they have a constitutional right

698
00:48:41,440 --> 00:48:46,000
Speaker 1: to bank capital. H and so one of the issues

699
00:48:46,040 --> 00:48:51,719
Speaker 1: in China that has been concerning investors has been, particularly

700
00:48:51,719 --> 00:48:54,880
Speaker 1: in the last six or seven years, when the economy

701
00:48:54,920 --> 00:48:58,160
Speaker 1: has been slowing down, quite a lot of state owned

702
00:48:58,360 --> 00:49:02,759
Speaker 1: enterprises have been in demanding capital from the bank. So

703
00:49:02,840 --> 00:49:07,239
Speaker 1: they have a right to access bank capital. But what

704
00:49:07,320 --> 00:49:10,200
Speaker 1: about leverage ratio? Is what about interest rates? There are

705
00:49:10,280 --> 00:49:13,000
Speaker 1: lots of dials and levers that the state can pull

706
00:49:13,400 --> 00:49:16,080
Speaker 1: to say if you want capital, okay, but it's going

707
00:49:16,120 --> 00:49:21,160
Speaker 1: to cost you fourteen or whatever. Well, the the state

708
00:49:21,200 --> 00:49:25,360
Speaker 1: owned enterprises have actual rights to have the capital, often

709
00:49:25,400 --> 00:49:29,400
Speaker 1: at lower rates, and so the the amount of control

710
00:49:29,440 --> 00:49:32,400
Speaker 1: the banks have or even the politicians who are in

711
00:49:32,480 --> 00:49:35,640
Speaker 1: charge of the banks is limited. That's fascinating. And so

712
00:49:36,560 --> 00:49:40,840
Speaker 1: this is a process which presumably will get deregulated over time,

713
00:49:41,400 --> 00:49:44,520
Speaker 1: but it's just not there at this stage. So a

714
00:49:44,600 --> 00:49:47,800
Speaker 1: couple of years ago. A giant story out of China

715
00:49:48,000 --> 00:49:51,480
Speaker 1: was the ghost cities, that that China seemed to be

716
00:49:51,560 --> 00:49:55,160
Speaker 1: anticipating the need for big urban centers, be it for

717
00:49:55,280 --> 00:49:58,719
Speaker 1: manufacturing or service jobs, and they would put up these

718
00:49:58,719 --> 00:50:03,120
Speaker 1: cities of ten, twenty thirty million people seemingly overnight, and

719
00:50:03,120 --> 00:50:05,240
Speaker 1: there was a bit of a frenzy to buy into

720
00:50:05,280 --> 00:50:08,600
Speaker 1: those units. And then that story kind of faded from

721
00:50:08,719 --> 00:50:12,960
Speaker 1: from the headlines. What's happening with those cities, what economic

722
00:50:13,080 --> 00:50:16,160
Speaker 1: purpose do they serve? And is that a good or

723
00:50:16,160 --> 00:50:21,040
Speaker 1: a bad thing for China's future. Urbanization is still at

724
00:50:21,040 --> 00:50:25,479
Speaker 1: the core of Chinese political thinking. This is a ten

725
00:50:25,600 --> 00:50:28,560
Speaker 1: year plan, This isn't just a short term may even

726
00:50:28,600 --> 00:50:31,880
Speaker 1: be longer than ten years. Yes, there's still a massive

727
00:50:31,960 --> 00:50:36,120
Speaker 1: movement of people from rural areas to the cities. There

728
00:50:36,120 --> 00:50:38,960
Speaker 1: over a hundred cities apparently in China that have a

729
00:50:39,000 --> 00:50:41,880
Speaker 1: million people or more. You know, a midsized city in

730
00:50:41,960 --> 00:50:46,000
Speaker 1: China is probably eight million people, like New York York City, right,

731
00:50:46,239 --> 00:50:48,680
Speaker 1: it's been a big city is like Shanghaire bridging at

732
00:50:48,680 --> 00:50:53,920
Speaker 1: twenty million people. And but but I think urbanization is

733
00:50:53,960 --> 00:50:57,480
Speaker 1: a long term process, and half the country is in

734
00:50:57,520 --> 00:51:00,200
Speaker 1: farms or is it. Is it more or less than that? UM,

735
00:51:00,239 --> 00:51:03,200
Speaker 1: it's it's probably a little bit more than half the

736
00:51:03,239 --> 00:51:09,840
Speaker 1: country that still is in a rural setting, but opportunities

737
00:51:10,360 --> 00:51:15,760
Speaker 1: UM economic opportunities are generally far greater in urban settings.

738
00:51:16,040 --> 00:51:19,959
Speaker 1: That your opportunity to go to university, be educated much

739
00:51:20,000 --> 00:51:25,200
Speaker 1: greater if you're in an urban UH location. And UM.

740
00:51:25,239 --> 00:51:28,880
Speaker 1: I think the government is definitely continuing to think of

741
00:51:29,000 --> 00:51:35,279
Speaker 1: urbanization UM as an ongoing primary policy, so that it

742
00:51:35,360 --> 00:51:37,760
Speaker 1: seems like it accomplishes a few things. That gets people

743
00:51:37,840 --> 00:51:41,320
Speaker 1: out of the rural areas, off the farms, It leads

744
00:51:41,360 --> 00:51:45,760
Speaker 1: to greater education of the population, and creates a fairly

745
00:51:45,800 --> 00:51:50,600
Speaker 1: sophisticated workforce that can do some of these more modern

746
00:51:51,120 --> 00:51:55,759
Speaker 1: industries that that the Chinese government is pushing people for.

747
00:51:55,920 --> 00:51:58,839
Speaker 1: Is that Is that a fair I think that's fair.

748
00:51:58,880 --> 00:52:01,840
Speaker 1: I think it's all part of the economic development program

749
00:52:01,880 --> 00:52:04,719
Speaker 1: that the Chinese government would like to see. So we

750
00:52:04,920 --> 00:52:08,320
Speaker 1: barely think beyond a quarter or two. In the United States,

751
00:52:08,680 --> 00:52:11,719
Speaker 1: they're making plans ten and twenty years out. That's a

752
00:52:11,840 --> 00:52:15,839
Speaker 1: real challenge to compete with that, isn't it. I think

753
00:52:16,239 --> 00:52:20,960
Speaker 1: emerging countries have to think in terms of decades for

754
00:52:21,000 --> 00:52:25,240
Speaker 1: their economic development. That's that is really the best way

755
00:52:25,280 --> 00:52:28,520
Speaker 1: of of of looking at things, because again, they have

756
00:52:28,760 --> 00:52:31,440
Speaker 1: the visibility because they can look at a country like

757
00:52:31,480 --> 00:52:34,279
Speaker 1: the US and say, maybe we don't want to be

758
00:52:34,320 --> 00:52:37,040
Speaker 1: exactly like what the US is, but we we can

759
00:52:37,120 --> 00:52:40,600
Speaker 1: catch up in these various areas over the course of

760
00:52:40,640 --> 00:52:45,440
Speaker 1: the next ten or fifteen years. So the infrastructure spend

761
00:52:45,480 --> 00:52:47,840
Speaker 1: we've seen in China right now, we're recording this in

762
00:52:47,880 --> 00:52:50,320
Speaker 1: the midst of an infrastructure debate in the United States.

763
00:52:50,920 --> 00:52:54,960
Speaker 1: They have been spending tens of billions, maybe even hundreds

764
00:52:54,960 --> 00:53:00,000
Speaker 1: of billions of dollars on infrastructure build out. How important

765
00:53:00,120 --> 00:53:02,319
Speaker 1: is that to the country. How much longer is that

766
00:53:02,360 --> 00:53:06,000
Speaker 1: going to go on? Are they going to basically create

767
00:53:06,480 --> 00:53:10,160
Speaker 1: the equivalent of what the US did post war for

768
00:53:10,200 --> 00:53:12,919
Speaker 1: their own country? And why aren't we doing it? Which

769
00:53:12,960 --> 00:53:16,040
Speaker 1: is the rhetorical question. Afterwards, I would probably say they've

770
00:53:16,080 --> 00:53:21,000
Speaker 1: already done that, because if you go to even midsize

771
00:53:21,000 --> 00:53:24,120
Speaker 1: cities in China, you'll find a beautiful new airport, you'll

772
00:53:24,160 --> 00:53:29,839
Speaker 1: find expressways and highways, You'll find in many places, very

773
00:53:30,000 --> 00:53:35,400
Speaker 1: very good infrastructure. And they they believe that is necessary

774
00:53:35,480 --> 00:53:39,560
Speaker 1: to attract companies to to set up factories or to

775
00:53:39,640 --> 00:53:44,840
Speaker 1: set up potential for employment and uh and they've they've

776
00:53:44,880 --> 00:53:47,200
Speaker 1: done that, and I think they are continuing to do

777
00:53:47,280 --> 00:53:50,400
Speaker 1: that as we look ahead. Maybe maybe we're not going

778
00:53:50,440 --> 00:53:53,160
Speaker 1: to see big increases, but I think we're going to

779
00:53:53,200 --> 00:53:56,400
Speaker 1: see ongoing spending. And they think that gives them an

780
00:53:56,640 --> 00:54:04,320
Speaker 1: competitive advantage for both building attracting capital, building factories, building

781
00:54:04,480 --> 00:54:09,120
Speaker 1: companies that become world class global competitors. And I think

782
00:54:09,120 --> 00:54:12,840
Speaker 1: the evidence is there. I mean, China is today in

783
00:54:12,960 --> 00:54:16,960
Speaker 1: many areas, the factory of the world. And and so

784
00:54:17,120 --> 00:54:21,759
Speaker 1: that that build building of infrastructure has has attracted a

785
00:54:21,760 --> 00:54:24,600
Speaker 1: lot of big companies. Someone here should take a look

786
00:54:24,640 --> 00:54:28,720
Speaker 1: at what they're doing, and perhaps we can have paved roads. Also.

787
00:54:29,280 --> 00:54:31,040
Speaker 1: I remember when I could drive my far on the

788
00:54:31,120 --> 00:54:35,480
Speaker 1: road and not worry about losing attire um anything we

789
00:54:35,560 --> 00:54:38,239
Speaker 1: skipped anything. We I didn't mention that. You want to

790
00:54:38,719 --> 00:54:41,080
Speaker 1: refer what any parts of the world or any countries

791
00:54:41,040 --> 00:54:43,400
Speaker 1: as well. I think I think India is worth mentioning

792
00:54:43,440 --> 00:54:47,600
Speaker 1: at this point because according to I think the the

793
00:54:48,719 --> 00:54:52,480
Speaker 1: leading plans in India, something like two thirds of all

794
00:54:52,560 --> 00:54:57,040
Speaker 1: infrastructure spending is planned to be built in the next

795
00:54:57,280 --> 00:55:00,680
Speaker 1: fourteen years in India. In India. Now, if you've been

796
00:55:00,719 --> 00:55:04,759
Speaker 1: to India, I have not. Okay, India is is. Uh

797
00:55:05,320 --> 00:55:08,279
Speaker 1: is quite a different situation to China. The infrastructure is

798
00:55:08,320 --> 00:55:12,440
Speaker 1: generally um relatively old, although there's been quite a lot

799
00:55:12,440 --> 00:55:15,080
Speaker 1: of infrastructure building in the last fifteen years. I've seen

800
00:55:15,200 --> 00:55:19,000
Speaker 1: photos of telephone poles with thousands of wires coming off

801
00:55:19,040 --> 00:55:22,120
Speaker 1: of them, summer phones, sumer Internet. It looks like it's

802
00:55:22,560 --> 00:55:26,880
Speaker 1: utterly jury rigged and cobbled together. Well, I am. The

803
00:55:26,960 --> 00:55:29,600
Speaker 1: plan is to change that. The plan is to build

804
00:55:30,120 --> 00:55:32,480
Speaker 1: something like two thirds of the total infrastructure of the

805
00:55:32,520 --> 00:55:37,800
Speaker 1: country in the next fourteen or fifteen years. And uh

806
00:55:37,960 --> 00:55:40,319
Speaker 1: that is that is with the Modi government. So it's

807
00:55:40,440 --> 00:55:44,160
Speaker 1: it's a very exciting time in India, and I think

808
00:55:44,200 --> 00:55:47,960
Speaker 1: it's important to highlight it because it may have a

809
00:55:48,000 --> 00:55:54,080
Speaker 1: significant effect on worldwide growth. Quite interesting. Let me jump

810
00:55:54,120 --> 00:55:57,920
Speaker 1: to some of my favorite questions I ask all of

811
00:55:57,960 --> 00:56:01,759
Speaker 1: my guests. Let's start with what is the most important

812
00:56:01,800 --> 00:56:05,920
Speaker 1: thing that people who know you don't know about your background? Well,

813
00:56:05,960 --> 00:56:10,640
Speaker 1: I when I was a student, I had quite a

814
00:56:10,719 --> 00:56:15,320
Speaker 1: lot of pretty basic jobs. I was a street cleaner

815
00:56:15,400 --> 00:56:20,120
Speaker 1: in London for a summer, literally pushing the room, yes,

816
00:56:20,360 --> 00:56:24,480
Speaker 1: which gave me a different perspective on the world. I think, Um,

817
00:56:24,560 --> 00:56:28,040
Speaker 1: and uh, it was certainly quite an interesting I worked

818
00:56:28,040 --> 00:56:32,520
Speaker 1: at a pulpam paper mill in northern British Columbia one summer,

819
00:56:32,520 --> 00:56:34,680
Speaker 1: which was quite a tough job, to say the least.

820
00:56:34,719 --> 00:56:39,040
Speaker 1: And I worked also in a in a warehouse for

821
00:56:39,080 --> 00:56:45,359
Speaker 1: a supermarket company, unpacking box cars. UM. I would say,

822
00:56:45,400 --> 00:56:47,960
Speaker 1: these these things motivated me to want to have an

823
00:56:47,960 --> 00:56:52,640
Speaker 1: office job and ultimately motivated me to move into the

824
00:56:52,640 --> 00:56:56,040
Speaker 1: investment world where I could be mentally stimulated. Tell us

825
00:56:56,040 --> 00:56:59,800
Speaker 1: about some of your mentors who helped push your career

826
00:56:59,800 --> 00:57:03,719
Speaker 1: on long and affected your philosophy. Well, I've been fortunate.

827
00:57:03,880 --> 00:57:08,640
Speaker 1: My father was an asset manager. It was a portfolio manager, um,

828
00:57:08,719 --> 00:57:11,800
Speaker 1: and I never had pressure to go into this area,

829
00:57:12,480 --> 00:57:18,120
Speaker 1: but he was. He was certainly someone who understood the

830
00:57:18,160 --> 00:57:21,280
Speaker 1: industry and was very helpful from that point of view.

831
00:57:21,680 --> 00:57:25,360
Speaker 1: And I was fortunate later to get an opportunity to

832
00:57:25,920 --> 00:57:29,920
Speaker 1: to work a little bit in the industry and and

833
00:57:29,960 --> 00:57:33,040
Speaker 1: then I took various exams to see if I enjoyed

834
00:57:33,080 --> 00:57:35,760
Speaker 1: it more so, that was one mentor I would say.

835
00:57:36,720 --> 00:57:40,440
Speaker 1: When I was at SG Warburg and Mercury asset Management, Uh,

836
00:57:40,680 --> 00:57:47,080
Speaker 1: several of my senior colleagues were truly investment people and

837
00:57:47,440 --> 00:57:51,600
Speaker 1: were tremendously good mentors to me. And this is an

838
00:57:51,640 --> 00:57:54,560
Speaker 1: industry that always has its challenges and you have to

839
00:57:54,560 --> 00:57:57,520
Speaker 1: know how to deal with those challenges. And they were

840
00:57:57,560 --> 00:58:01,760
Speaker 1: they were they were very, very important to me. How

841
00:58:01,800 --> 00:58:05,720
Speaker 1: about your philosophy, What investors affected the way you look

842
00:58:05,720 --> 00:58:09,600
Speaker 1: at the world of investing or in general or emerging

843
00:58:09,640 --> 00:58:13,200
Speaker 1: markets in particular. Well, this probably sounds a little bit textbook,

844
00:58:13,360 --> 00:58:17,040
Speaker 1: but I would say I very clearly understand the way

845
00:58:17,360 --> 00:58:22,080
Speaker 1: Warren Buffett invests um by the way people people don't

846
00:58:22,120 --> 00:58:25,480
Speaker 1: realize it's an actual legal obligation of the show for

847
00:58:25,640 --> 00:58:29,080
Speaker 1: that to be the answer. It's it's you could do

848
00:58:29,200 --> 00:58:32,480
Speaker 1: much worse. So well, I think he's probably one of

849
00:58:32,520 --> 00:58:35,479
Speaker 1: the absolute best investors of all time. I also think

850
00:58:36,200 --> 00:58:40,800
Speaker 1: John Templeton was one of again one of the greatest

851
00:58:40,840 --> 00:58:44,680
Speaker 1: investors of all time. Very much a global investor and

852
00:58:44,920 --> 00:58:48,240
Speaker 1: UH and very fundamental in nature. And I think I

853
00:58:48,320 --> 00:58:51,120
Speaker 1: really think they were probably the two names that I

854
00:58:51,120 --> 00:58:54,160
Speaker 1: would put at the top of the list. Buffet for valuation,

855
00:58:54,360 --> 00:58:58,600
Speaker 1: Templeton for global and and Templeton for evaluation as well.

856
00:58:58,640 --> 00:59:02,400
Speaker 1: Really interesting Let's talk a little bit about some of

857
00:59:02,400 --> 00:59:05,720
Speaker 1: your favorite books. This is everybody's favorite question. Tell us

858
00:59:05,760 --> 00:59:09,560
Speaker 1: what you like to read. Give us some of your

859
00:59:09,560 --> 00:59:14,600
Speaker 1: favorite books, be the finance related or not, fiction or nonfiction. Well,

860
00:59:14,640 --> 00:59:18,400
Speaker 1: I m I very much enjoyed recently reading a book

861
00:59:18,440 --> 00:59:20,680
Speaker 1: on the Right Brothers by David McCulloch. I thought it

862
00:59:20,720 --> 00:59:27,440
Speaker 1: was a very interesting book. I enjoyed um reading The

863
00:59:27,520 --> 00:59:29,640
Speaker 1: Last Spike, which is a Canadian book all about the

864
00:59:29,680 --> 00:59:33,160
Speaker 1: building of the Canadian Pacific Railroad and the Last Spike,

865
00:59:33,400 --> 00:59:35,400
Speaker 1: the Last Spikes. It was the last spike in the

866
00:59:35,480 --> 00:59:40,080
Speaker 1: railroad when they finished that off in the Rockies. And

867
00:59:40,280 --> 00:59:44,280
Speaker 1: uh so that's that's that's a bit of my Canadian background. Um.

868
00:59:44,400 --> 00:59:49,200
Speaker 1: I still think The Prince by Machiavelli is a brilliant

869
00:59:49,240 --> 00:59:53,800
Speaker 1: book and and tells you a lot about interacting in

870
00:59:54,560 --> 00:59:59,520
Speaker 1: difficult situations and in a very very useful book. From

871
00:59:59,560 --> 01:00:02,560
Speaker 1: that point of you, those are those are three winners.

872
01:00:03,040 --> 01:00:06,160
Speaker 1: What has changed since you've entered the world of emerging markets?

873
01:00:06,160 --> 01:00:09,240
Speaker 1: How is it different today than it was in the

874
01:00:09,280 --> 01:00:15,560
Speaker 1: early nineties. Our universe has changed dramatically. So again, back

875
01:00:15,960 --> 01:00:20,440
Speaker 1: in the places like Malaysia and Mexico were huge parts

876
01:00:20,440 --> 01:00:22,960
Speaker 1: of our universe. Portugal and Greece were part of our

877
01:00:23,040 --> 01:00:25,920
Speaker 1: universe back then. Very big parts has come back in

878
01:00:26,000 --> 01:00:30,320
Speaker 1: but it left for a while. Today China has become

879
01:00:30,800 --> 01:00:35,960
Speaker 1: the really big weighted country, but Brazil and India are

880
01:00:36,040 --> 01:00:40,640
Speaker 1: also very substantial. So the universe has changed, um and

881
01:00:40,720 --> 01:00:43,400
Speaker 1: there's been quite a lot of sectoral change in it.

882
01:00:43,440 --> 01:00:47,120
Speaker 1: There's been a lot more constituents of our universe, which

883
01:00:47,160 --> 01:00:50,840
Speaker 1: I think is very different from the US, where I

884
01:00:50,880 --> 01:00:53,880
Speaker 1: think the number of stocks has actually fallen over the

885
01:00:53,960 --> 01:00:57,360
Speaker 1: last say fifteen years. The joke is the Wilshire five

886
01:00:57,400 --> 01:01:01,600
Speaker 1: thousand is about thirty, right. I mean. The other thing

887
01:01:01,640 --> 01:01:08,959
Speaker 1: that's really changed is that information has ballooned. So years ago,

888
01:01:10,240 --> 01:01:15,040
Speaker 1: going being being based in these markets was I think

889
01:01:15,160 --> 01:01:21,240
Speaker 1: much more important, whereas today I don't think you have

890
01:01:21,400 --> 01:01:24,000
Speaker 1: to be based in the markets. I think you can

891
01:01:24,080 --> 01:01:29,200
Speaker 1: go and travel regularly to the markets because the information

892
01:01:29,440 --> 01:01:35,360
Speaker 1: is instant. Is that a competitive disadvantage? UM At one

893
01:01:35,400 --> 01:01:37,560
Speaker 1: point in time where there wasn't a lot of information

894
01:01:37,640 --> 01:01:40,600
Speaker 1: and now anyone can google it and come up with

895
01:01:40,640 --> 01:01:44,160
Speaker 1: some some data. I think twenty or twenty five years ago,

896
01:01:44,960 --> 01:01:49,080
Speaker 1: it it could have been seen as a disadvantage so

897
01:01:49,240 --> 01:01:51,800
Speaker 1: you've told us about the recent shifts over the past

898
01:01:52,040 --> 01:01:55,160
Speaker 1: three decades. What do you expect the shifts to be

899
01:01:55,560 --> 01:01:58,400
Speaker 1: in the emerging market space over the next three decades?

900
01:01:59,240 --> 01:02:01,240
Speaker 1: Um it, Well, it's very hard to tell. I would

901
01:02:01,240 --> 01:02:06,560
Speaker 1: imagine emerging markets will develop further and and we'll see

902
01:02:06,600 --> 01:02:09,840
Speaker 1: some of the frontier countries joining the emerging markets. Vietnam,

903
01:02:09,960 --> 01:02:14,440
Speaker 1: for inces, is a frontier country. Perhaps it will develop

904
01:02:14,520 --> 01:02:18,640
Speaker 1: its capital markets to become an emerging market. We'll see.

905
01:02:19,560 --> 01:02:23,080
Speaker 1: So that that's one thing. Um you know, some perhaps

906
01:02:23,080 --> 01:02:27,360
Speaker 1: shorter term changes. We've seen a market than the last

907
01:02:27,440 --> 01:02:33,120
Speaker 1: seven years where growth has been the most successful style

908
01:02:33,360 --> 01:02:37,400
Speaker 1: by a long way, and at some stage I would

909
01:02:37,440 --> 01:02:42,240
Speaker 1: anticipate a change of leadership more towards value. True in

910
01:02:42,240 --> 01:02:45,280
Speaker 1: the US as well, that it would probably be a

911
01:02:45,320 --> 01:02:49,479
Speaker 1: global effect if it happened. I think there's a high

912
01:02:49,560 --> 01:02:52,000
Speaker 1: probability of that. I also think in the emerging markets

913
01:02:52,040 --> 01:02:55,320
Speaker 1: in the last five or six years, markets have been

914
01:02:55,440 --> 01:02:59,880
Speaker 1: quite affected in some way, in some cases dominated by

915
01:03:00,200 --> 01:03:07,040
Speaker 1: macroeconomic factors, and I would guess that they'll become more idiosyncratic,

916
01:03:07,120 --> 01:03:11,840
Speaker 1: more stock focused at some point in time. Tell us

917
01:03:11,840 --> 01:03:15,000
Speaker 1: about a time you failed and what you learned from

918
01:03:15,040 --> 01:03:19,720
Speaker 1: it well. When I was at University UM many many

919
01:03:19,800 --> 01:03:24,640
Speaker 1: years ago, I was very involved in student politics, and

920
01:03:24,880 --> 01:03:29,040
Speaker 1: I was the speaker of the University Student Council, which

921
01:03:29,120 --> 01:03:33,760
Speaker 1: was actually quite a serious operation. And uh, there was

922
01:03:33,800 --> 01:03:38,680
Speaker 1: an election for president of the student Council, and I

923
01:03:39,360 --> 01:03:42,960
Speaker 1: think I could have been a contender, and I could

924
01:03:43,000 --> 01:03:47,640
Speaker 1: have even wanted and I I decided not to go

925
01:03:47,720 --> 01:03:51,360
Speaker 1: into that race. And I and I've I've lived to

926
01:03:51,400 --> 01:03:54,720
Speaker 1: regret it. We always seem to regret the things we

927
01:03:54,840 --> 01:03:58,080
Speaker 1: don't do as opposed to those that we do. Tell

928
01:03:58,160 --> 01:04:00,760
Speaker 1: us what you do outside of the office to either

929
01:04:00,920 --> 01:04:04,120
Speaker 1: relax or stay mentally or physically fit. What do you

930
01:04:04,120 --> 01:04:06,960
Speaker 1: do for fun when you're not in a suit and tie? Well,

931
01:04:07,000 --> 01:04:10,560
Speaker 1: when I can, I try and do a bit of exercise. Um,

932
01:04:10,600 --> 01:04:12,360
Speaker 1: not not as much as I'd like to, but I

933
01:04:12,400 --> 01:04:16,800
Speaker 1: do try and do some. I read quite a lot, Um,

934
01:04:16,840 --> 01:04:22,360
Speaker 1: I quite enjoy some movies. I have a cottage up

935
01:04:22,400 --> 01:04:25,680
Speaker 1: in Canada, so I uh go up there and and

936
01:04:26,640 --> 01:04:30,680
Speaker 1: traveling boats and and see friends in those places. And I,

937
01:04:31,520 --> 01:04:34,200
Speaker 1: even though I travel a lot for work, I do

938
01:04:34,320 --> 01:04:38,320
Speaker 1: travel for pleasure as well, and go and see historical

939
01:04:38,400 --> 01:04:41,840
Speaker 1: sites and and you know, place like Rome, for instance,

940
01:04:41,960 --> 01:04:46,000
Speaker 1: is a wonderful place to go with incredible, incredible history,

941
01:04:46,320 --> 01:04:48,560
Speaker 1: no doubt about that. Where in Canada do you have

942
01:04:48,600 --> 01:04:53,040
Speaker 1: at a cottage? And what lakes are you voting? It's

943
01:04:53,240 --> 01:04:57,439
Speaker 1: um in Lake Huron. It's a part of Lake Huron

944
01:04:57,560 --> 01:05:01,080
Speaker 1: called Georgian Bay in the eastern part of Kuran. And

945
01:05:01,320 --> 01:05:04,640
Speaker 1: it's of course a very very big lake, and it's

946
01:05:04,640 --> 01:05:09,000
Speaker 1: it's remote, very difficult to get to, and but but

947
01:05:09,160 --> 01:05:13,360
Speaker 1: it's very calming place. I go fishing every summer in Maine,

948
01:05:13,960 --> 01:05:16,320
Speaker 1: and we're so far north that we start to get

949
01:05:16,440 --> 01:05:19,480
Speaker 1: Bell Canada showing up on there. But it's a flight

950
01:05:19,520 --> 01:05:23,360
Speaker 1: in and then a floatplane and really it's just a

951
01:05:23,600 --> 01:05:27,080
Speaker 1: d It's not just a hundred miles away from anywhere,

952
01:05:27,120 --> 01:05:29,840
Speaker 1: it's it's a hundred years away from anyway. Yeah. Yeah,

953
01:05:29,840 --> 01:05:32,360
Speaker 1: it's very remote where I go, and and actually quite

954
01:05:32,360 --> 01:05:34,600
Speaker 1: hard to get to. What sort of advice would you

955
01:05:34,680 --> 01:05:38,040
Speaker 1: give to a millennial or someone just beginning their career,

956
01:05:38,160 --> 01:05:43,520
Speaker 1: who were who was interested uh in getting into emerging

957
01:05:43,640 --> 01:05:47,280
Speaker 1: markets or asset management or or finance. Well, this is

958
01:05:47,320 --> 01:05:49,480
Speaker 1: something we have to be concerned about because there are

959
01:05:49,520 --> 01:05:53,240
Speaker 1: lots of millennials now working with us and UH. Sometimes

960
01:05:53,320 --> 01:05:57,320
Speaker 1: they have different priorities from from from the way we are.

961
01:05:58,080 --> 01:06:01,240
Speaker 1: But I I would say, first of all, you can

962
01:06:01,280 --> 01:06:06,960
Speaker 1: combine your business interests and and other interests, your personal

963
01:06:07,000 --> 01:06:10,720
Speaker 1: interests in what we do. Obviously, the type of work

964
01:06:10,760 --> 01:06:15,720
Speaker 1: we do can become challenging, but you can do other things.

965
01:06:15,760 --> 01:06:21,520
Speaker 1: For instance, I'm involved heavily in a charity which is

966
01:06:23,280 --> 01:06:30,280
Speaker 1: makes grants to about seventy grantees around the emerging market world.

967
01:06:30,960 --> 01:06:35,120
Speaker 1: I'm involved in an educational foundation UM, and those are

968
01:06:35,240 --> 01:06:38,919
Speaker 1: those are things that are very very important to me. UM.

969
01:06:39,040 --> 01:06:44,480
Speaker 1: I would also encourage millennials to think long term. The

970
01:06:44,520 --> 01:06:48,360
Speaker 1: asset managiment business is a long term business, particularly the

971
01:06:48,360 --> 01:06:51,080
Speaker 1: long only part of it, and you can't really be

972
01:06:51,120 --> 01:06:55,320
Speaker 1: evaluated properly if you're not going to be long term

973
01:06:55,360 --> 01:07:00,360
Speaker 1: in in your focus. UM. Finally, I would say, learn

974
01:07:00,400 --> 01:07:05,760
Speaker 1: how to evaluate yourself, learn how to two criticize yourself

975
01:07:06,000 --> 01:07:13,960
Speaker 1: in a positive framework constructive criticism UM, and UM. Understand

976
01:07:14,000 --> 01:07:16,280
Speaker 1: what you do well and what you do badly. And

977
01:07:16,400 --> 01:07:19,840
Speaker 1: our final question, what is it that you know about

978
01:07:19,960 --> 01:07:23,400
Speaker 1: investing in emerging markets today that you wish you knew

979
01:07:23,640 --> 01:07:30,000
Speaker 1: thirty years ago? Well, I I would say the great

980
01:07:30,000 --> 01:07:33,360
Speaker 1: thing about investing in general, but certainly in emerging markets.

981
01:07:33,360 --> 01:07:39,120
Speaker 1: It's very stimulating, it's always challenging, it's not easy. You

982
01:07:39,200 --> 01:07:43,320
Speaker 1: are always learning. Very important. You have a plan, you

983
01:07:43,440 --> 01:07:47,560
Speaker 1: have a process, and I think to be in this

984
01:07:47,640 --> 01:07:53,240
Speaker 1: business you have to know how to take pain, how

985
01:07:53,280 --> 01:07:58,240
Speaker 1: to take pain because anyone doing what we do active

986
01:07:58,280 --> 01:08:02,000
Speaker 1: investment management is going to go through challenging periods of

987
01:08:02,080 --> 01:08:06,040
Speaker 1: time and you have to be mentally strong to go

988
01:08:06,160 --> 01:08:10,680
Speaker 1: through that. Quite fascinating. We have been speaking with James

989
01:08:10,720 --> 01:08:15,920
Speaker 1: Donald of Lizard Asset Management. If you enjoyed this conversation,

990
01:08:16,000 --> 01:08:17,800
Speaker 1: be sure and look up an Inch or down an

991
01:08:17,800 --> 01:08:22,879
Speaker 1: Inch on Apple iTunes, Overcast, Bloomberg dot com, or wherever

992
01:08:23,040 --> 01:08:27,160
Speaker 1: finer podcasts are sold. We love your comments, feedback and

993
01:08:27,280 --> 01:08:31,720
Speaker 1: suggestions right to us at m IB podcast at Bloomberg

994
01:08:31,800 --> 01:08:34,360
Speaker 1: dot net. I would be remiss if I did not

995
01:08:34,520 --> 01:08:37,400
Speaker 1: thank the crack staff that helps us put together this

996
01:08:37,439 --> 01:08:42,840
Speaker 1: conversation each week. Medina Parwana is my producer and audio engineer.

997
01:08:43,200 --> 01:08:47,240
Speaker 1: Taylor Riggs is our booker producer. Mike Batnick is our

998
01:08:47,320 --> 01:08:51,719
Speaker 1: head of research. Attica val Bronn is our business manager.

999
01:08:52,200 --> 01:08:55,880
Speaker 1: I'm Barry Reholts. You're listening to Masters in Business on

1000
01:08:56,000 --> 01:09:02,880
Speaker 1: Bloomberg Radio. You take take out INT