WEBVTT - Bloomberg Wall Street Week - June 23, 2023 0:00:00.240 --> 0:00:02.440 This is Bloomberg Wall Street Week. 0:00:02.480 --> 0:00:04.400 I mean may not have an overall recession. We're having 0:00:04.400 --> 0:00:06.800 a rolling recession. To Kanye roll looks pretty strongly is 0:00:06.840 --> 0:00:07.680 when it comes to jobs. 0:00:07.720 --> 0:00:09.840 The financial story is that shape are worth. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.440 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:17.000 generative AI. 0:00:16.920 --> 0:00:19.320 Through the eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan Moynahan, a Bank of America, 0:00:22.560 --> 0:00:25.360 deebro Lair of the Paulson Institute, Len Hubbard of the 0:00:25.360 --> 0:00:26.240 Columbia Business. 0:00:26.000 --> 0:00:30.120 School, Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.240 --> 0:00:33.199 The Law of unintended consequences for the Fed, for Biden, 0:00:33.640 --> 0:00:36.200 and for India. This is Wall Street Week. I'm Romain 0:00:36.280 --> 0:00:40.440 Bosting in for David Weston this week, The geopolitical wins 0:00:40.520 --> 0:00:44.479 blowing in India's favor. A conversation with Rockefeller International Chairman 0:00:44.560 --> 0:00:47.400 Rasher Sharma on the Rendramodi's economic ambition. 0:00:47.640 --> 0:00:50.199 You'd have to be a very big contradiant to take 0:00:50.240 --> 0:00:51.479 a bit against India. 0:00:51.520 --> 0:00:54.480 Plus The Business of Sports with Boston Celtics co founder 0:00:54.600 --> 0:00:57.520 ce Felauca on the high stakes deal making in basketball 0:00:57.560 --> 0:00:58.040 and soccer. 0:00:58.440 --> 0:01:00.240 A lot of these valuations have been drown up by 0:01:00.240 --> 0:01:03.880 the fact that certainly basketball and soccer are global game. 0:01:04.319 --> 0:01:07.679 At HPE, CEO Antonio n on the rush to strike. 0:01:07.720 --> 0:01:09.600 While the AI iron is high. 0:01:09.600 --> 0:01:12.280 AI will be a huge boost of revenue growth. 0:01:25.000 --> 0:01:27.600 It was a compressed trading week in US markets, markets 0:01:27.600 --> 0:01:30.440 that for a second week in a row, orbited around 0:01:30.440 --> 0:01:33.199 one J. Powell, the FED Chair, making a semi annual 0:01:33.280 --> 0:01:36.319 pilgrimage to Congress, two days of questioning before the House 0:01:36.360 --> 0:01:38.360 and the Senate on the outlook for interest rates. 0:01:38.440 --> 0:01:42.480 It only makes common sense to move at a careful pace. 0:01:42.840 --> 0:01:44.240 We don't want to do more than we have to, 0:01:44.360 --> 0:01:47.520 but overwhelmingly people in the committee do think that there's 0:01:47.600 --> 0:01:48.600 more rate hikes coming. 0:01:48.680 --> 0:01:51.640 Lawmakers also press Powell to explain how the FED will 0:01:51.680 --> 0:01:54.520 strengthen the supervision and regulation of our banks. 0:01:54.760 --> 0:01:58.080 We need to update our thinking around liquidity regulation, which 0:01:58.200 --> 0:02:01.559 was based on a certain speed of bank runs, which 0:02:01.600 --> 0:02:06.120 now looks to be outdated. Really, the liquidity regulation was 0:02:06.200 --> 0:02:08.000 just not It was not appropriate. 0:02:08.160 --> 0:02:10.200 The rise of interest rates and the regional bank fauled 0:02:10.200 --> 0:02:13.360 out have already had considerable consequence for the housing market, 0:02:13.560 --> 0:02:16.000 the number of homes for sale in the US dropping 0:02:16.080 --> 0:02:18.639 to a record low, homeowners opting to stay put since 0:02:18.680 --> 0:02:21.280 moving would mean giving up a cheaper mortgage. 0:02:21.480 --> 0:02:24.520 Those that have that three percent four percent mortgage are 0:02:24.520 --> 0:02:26.720 going to be very reluctant. 0:02:26.120 --> 0:02:27.359 To give up that interest rate. 0:02:27.400 --> 0:02:29.760 They have equity in their home. They have equity in 0:02:29.760 --> 0:02:30.399 their mortgage. 0:02:30.560 --> 0:02:32.520 Then there are the consequences of high inflation. 0:02:32.880 --> 0:02:35.760 Central bankers around the globe this week making clear that 0:02:35.800 --> 0:02:36.559 the battle. 0:02:36.240 --> 0:02:40.960 Decurb price pressures far from over. Fresh rate heights from Switzerland, Norway, Turkey, 0:02:41.000 --> 0:02:41.560 and the UK. 0:02:41.639 --> 0:02:45.240 The Bank of England unexpectedly boosting its benchmark rate by 0:02:45.280 --> 0:02:48.760 a half percentage point, a day after core inflation unexpectedly 0:02:48.840 --> 0:02:50.600 surge to a thirty one year high. 0:02:50.880 --> 0:02:54.120 Well, today's figures strengthen the case for the government to 0:02:54.280 --> 0:02:58.200 stick to its gums. No matter what the pressure from left, 0:02:58.440 --> 0:03:01.400 right or center, we wouldn't be pushed off course. 0:03:01.680 --> 0:03:05.480 Meanwhile, the consequence of a single word. The week started 0:03:05.480 --> 0:03:08.840 with US Secretary of State Anthony Blincoln making progress on 0:03:08.960 --> 0:03:11.240 thawing relations with China, but by the end of the 0:03:11.240 --> 0:03:14.639 week that progress was undone. An unscripted comment from President 0:03:14.720 --> 0:03:17.799 Biden at a campaign event, preferring to Jijian PINGUS quote 0:03:17.919 --> 0:03:18.600 a dictator. 0:03:19.040 --> 0:03:23.480 We had an incident that caused some confusion, it might say, 0:03:23.880 --> 0:03:26.799 But the Secretary of Blincoln had a great trip to China. 0:03:27.520 --> 0:03:30.919 I expect to be meeting with President she sometime on 0:03:30.960 --> 0:03:34.200 a near term. And I don't think it's had any 0:03:34.639 --> 0:03:36.040 real consequence and. 0:03:36.000 --> 0:03:39.160 The consequence for poor US China relations. It's looking to 0:03:39.200 --> 0:03:42.640 be advantageous for India Prime Minister voting in his first 0:03:42.640 --> 0:03:45.040 official state visit to the US, making the case for 0:03:45.080 --> 0:03:48.400 corporate CEOs and government officials to view India as a 0:03:48.440 --> 0:03:52.520 partner in technology and a counterbalance to China in the pond. 0:03:52.640 --> 0:04:00.600 Few YUS that have been many advances in AI E 0:04:01.200 --> 0:04:04.560 at the same time that help been. 0:04:06.440 --> 0:04:11.600 Even more momentous development in another AIA. 0:04:13.280 --> 0:04:16.600 I made it long and India. 0:04:17.440 --> 0:04:20.760 Meanwhile, back on Wall Street, global stocks notching their worst 0:04:20.800 --> 0:04:23.440 week since March, the SMP and the Nasdaq down more 0:04:23.480 --> 0:04:25.440 than a percent on the week, the socks six hundred, 0:04:25.480 --> 0:04:28.279 Europe sliding three and the World beating NK in Japan 0:04:28.839 --> 0:04:31.400 ending a run of ten straight week of gains. The 0:04:31.400 --> 0:04:33.560 money flowing out of equities did find its way into 0:04:33.560 --> 0:04:35.920 the perceived safety of government bonds, and that did push 0:04:36.000 --> 0:04:39.160 yields lower, deepening the inversion of the treasury yield curve, 0:04:39.480 --> 0:04:41.880 and that in turn prompted a flight into the dollar 0:04:42.000 --> 0:04:44.640 and a flight out of commodities. It was a somewhat 0:04:44.680 --> 0:04:48.039 confusing and chaotic week four financial markets. Financial markets that 0:04:48.120 --> 0:04:50.560 have been on an unexpected rally this year in defiance 0:04:50.839 --> 0:04:53.840 of mixed economic data and Hawker's central bank actions. 0:04:53.839 --> 0:04:54.960 Investors now left. 0:04:54.760 --> 0:04:57.919 To decide what's worse, the fear of missing out or 0:04:57.960 --> 0:05:00.640 fear of the next shoe to drop. Joining us now 0:05:00.680 --> 0:05:03.680 for our roundtable is Chris Alman, the chief investment officer 0:05:03.720 --> 0:05:06.039 over at Calsters, and Sarah Ketter are the co founder 0:05:06.320 --> 0:05:09.800 over at Causeway Capital. And Sarah, this is a question 0:05:09.800 --> 0:05:11.479 that I think is going to be debated for weeks, 0:05:11.480 --> 0:05:14.040 if not months to come here. Looking at this rally 0:05:14.080 --> 0:05:16.800 that we've had so far this year, do you think 0:05:16.880 --> 0:05:21.000 that whatever tail winds caused that rally will persist into 0:05:21.000 --> 0:05:21.760 the second half. 0:05:21.560 --> 0:05:21.960 Of the year. 0:05:22.320 --> 0:05:25.119 Probably not, And for some of the reasons that you've 0:05:25.360 --> 0:05:29.480 opened the show with today, the economic situation is likely 0:05:29.520 --> 0:05:34.200 to slow, certainly overseas. Europe's already slowing. UK has a 0:05:34.279 --> 0:05:38.280 terrible inflation problem, is doing its best to contain it. 0:05:38.520 --> 0:05:43.279 And as for the US, I mean even more inverted 0:05:43.400 --> 0:05:48.280 yield curve plus the fastest FED funds rate rise up 0:05:48.279 --> 0:05:51.039 to five percentage points that we've seen. I don't know 0:05:51.080 --> 0:05:55.440 how long. What's going on in credit and tightening a 0:05:55.480 --> 0:05:59.039 credit and there are numerous reasons why the stock market 0:05:59.520 --> 0:06:02.480 in the US and oversees may have gotten ahead of themselves. 0:06:02.480 --> 0:06:04.520 It doesn't mean to say there aren't stocks to own, 0:06:04.960 --> 0:06:09.520 just the broad indices might have a bit of a 0:06:09.600 --> 0:06:10.400 setback ahead. 0:06:10.720 --> 0:06:13.200 The KBW Bank index is falling more than five percent 0:06:13.240 --> 0:06:15.800 this week amid what Wells Fargo analyst Mike Mayo said 0:06:16.200 --> 0:06:20.080 is a combination of a bank crisis discount, a recession discount, 0:06:20.360 --> 0:06:23.960 and a regulatory discount. The results of the stress tests 0:06:24.000 --> 0:06:26.400 are set to be released next week and could provide 0:06:26.400 --> 0:06:29.880 some insight into the potential for higher capital requirements for 0:06:29.920 --> 0:06:32.359 the biggest lenders out there, and insight of course, and 0:06:32.400 --> 0:06:35.800 to the feed through into bank lending and economic activity. Sarah, 0:06:35.839 --> 0:06:38.000 there's sort of two components here when we talk about 0:06:38.040 --> 0:06:40.040 the banks, and I guess what we want out of 0:06:40.120 --> 0:06:42.800 the banks, right, there's that extension of credit, I guess, 0:06:42.880 --> 0:06:45.560 to the economy, to folks that need to borrow. There's 0:06:45.600 --> 0:06:48.320 also the issue of capital returns to shareholders. 0:06:49.720 --> 0:06:55.360 Yes, and the conflict at present in the US. US banks, 0:06:55.920 --> 0:06:59.080 certainly the regional level, are under quite a bit of 0:06:59.080 --> 0:07:01.839 pressure and as long as rates remain high, they have 0:07:01.880 --> 0:07:04.720 a series problem both their assets and their liabilities, flight 0:07:04.720 --> 0:07:09.280 of liabilities and markdown and assets. So what are they 0:07:09.279 --> 0:07:11.680 going to do? I think they just just embrace against time. 0:07:11.720 --> 0:07:13.600 For them, they've got to hold it all together. 0:07:14.360 --> 0:07:18.040 You think they're somewhat unsavory place to be investing at present. 0:07:18.440 --> 0:07:23.880 In contrast, European banks over capitalized in general and returning 0:07:23.880 --> 0:07:27.760 capitalist shareholders through dividends and share buybacks. That's you know, 0:07:27.800 --> 0:07:29.680 it's interesting to see the turn of the tables. After 0:07:29.720 --> 0:07:32.840 all those years of European banks being under performers versus 0:07:32.840 --> 0:07:35.400 the US, it has all changed. 0:07:35.680 --> 0:07:38.880 Chris, I am here is when we talk about economic conditions, 0:07:38.960 --> 0:07:40.440 or at least we try to read the tea leads 0:07:40.440 --> 0:07:43.320 of what those economic conditions might be. We do know 0:07:43.400 --> 0:07:47.400 that well having credit, basically banks lending money to consumers 0:07:47.440 --> 0:07:49.760 and to businesses is a big part of the grease 0:07:50.160 --> 0:07:52.720 for our economy here and their concerns that that grease 0:07:52.800 --> 0:07:54.760 just isn't there, at least not into the level that 0:07:54.800 --> 0:07:55.480 we want it to be. 0:07:56.920 --> 0:07:59.360 Well remain I think the banks have really slowed down 0:07:59.360 --> 0:08:03.560 their corporate lending in their direct line programs as a 0:08:03.600 --> 0:08:06.520 result of the regulations that came in two thousand and eight, 0:08:07.080 --> 0:08:11.120 but I did definitely being more conservative. The regional banks. 0:08:10.840 --> 0:08:14.960 Hold a lot of real estate debt in office real 0:08:15.040 --> 0:08:17.239 estate debt, and you guys have talked a lot today 0:08:17.280 --> 0:08:20.400 about how the real estate market is due for write 0:08:20.440 --> 0:08:23.840 downs and declines in value. That's going to put pressure 0:08:23.880 --> 0:08:27.960 on their balance sheets, as in some cases the owners 0:08:28.000 --> 0:08:29.240 throw the keys at them. 0:08:29.560 --> 0:08:30.440 So I'm worried. 0:08:30.880 --> 0:08:33.400 You know, there's still a lot of private credit that 0:08:33.640 --> 0:08:36.840 has now come in from institutional investors into the market 0:08:37.200 --> 0:08:40.439 that can fill that financing gap. Those rates of return 0:08:40.520 --> 0:08:43.280 look pretty attractive now that there really are yields and 0:08:43.360 --> 0:08:46.680 fixed income. That said, I think the regional banks are 0:08:46.720 --> 0:08:49.960 going to continue to feel pressure just because their natural 0:08:50.000 --> 0:08:53.680 market is certainly compressed. They've got better interest rates to 0:08:53.679 --> 0:08:54.920 help them, but it's going to be tough. 0:08:55.000 --> 0:08:57.840 That natural market is compressed right now. Chris So and 0:08:57.920 --> 0:09:00.680 you mentioned commercial real estate. That's obviously a big focus 0:09:00.720 --> 0:09:02.520 as well. But then even j Powell, when he was 0:09:02.520 --> 0:09:05.439 on Capitol Hill this week, was asked about the need 0:09:05.520 --> 0:09:09.200 for additional or I should say, higher capital requirements, and 0:09:09.640 --> 0:09:11.319 he pretty much, at least in the way that Jay 0:09:11.360 --> 0:09:12.920 Powell speaks, affirm that. 0:09:14.720 --> 0:09:15.160 He did. 0:09:15.240 --> 0:09:18.080 Romaine and I think that you know, they would like 0:09:18.160 --> 0:09:20.920 to see stronger, safer banks. We took a lot of 0:09:20.960 --> 0:09:24.240 time to look deep into Silicon Valley Bank and understand 0:09:24.240 --> 0:09:26.520 that exposure first reserve bank. 0:09:27.640 --> 0:09:29.359 They really were outliers. 0:09:29.400 --> 0:09:33.040 When you look at the inflows and outflows to banks, 0:09:33.800 --> 0:09:37.560 their capital structure, the regional banks, there are some that 0:09:37.640 --> 0:09:39.000 are weak and some that are strong. 0:09:39.160 --> 0:09:42.400 The money center banks really are in very good shape 0:09:42.440 --> 0:09:42.679 in the. 0:09:42.679 --> 0:09:45.480 US, say Sarah, you're probably a little bit more of 0:09:45.520 --> 0:09:47.520 an active manager than what Chris would be. 0:09:47.640 --> 0:09:48.440 I am curious. 0:09:48.800 --> 0:09:51.319 Does what happen with the banking crisis, the regional banking 0:09:51.360 --> 0:09:54.360 crisis back in March and the potential sort of specter 0:09:54.440 --> 0:09:58.600 of additional regulation, does that change your broader investment thesis overall? 0:10:00.360 --> 0:10:02.679 No, it doesn't. That we're value managers. 0:10:03.160 --> 0:10:06.640 It causeway in our fundamental portfolios, international and global and 0:10:06.679 --> 0:10:09.120 We're no matter where we are in the economic cycle, 0:10:09.200 --> 0:10:12.319 whether we're in a slowing phase or an expansion, We're 0:10:12.360 --> 0:10:17.040 looking for companies engaged in operational restructuring, so something has 0:10:17.080 --> 0:10:19.640 gone wrong with their earnings and then new management or 0:10:19.800 --> 0:10:23.400 the reformed management is there to fix it and reaccelerate. 0:10:23.440 --> 0:10:27.320 And those companies exist all over the world. 0:10:27.559 --> 0:10:30.680 This is a great conversation. Sarah Ketterer over at Causeway Capital, 0:10:30.720 --> 0:10:32.720 and there on the other side of your screen, Chris 0:10:32.760 --> 0:10:37.000 Ailman over at Cawsters. Two big and really smart people 0:10:37.080 --> 0:10:39.199 here to talk about the week that was and maybe 0:10:39.240 --> 0:10:44.640 the weeks to come up ahead. Coming up, norendromodes high 0:10:44.640 --> 0:10:47.720 fline ambitions and a fresh opportunity to sell the world. 0:10:47.920 --> 0:10:52.680 On India's economic future, Rockefeller internationals Rashier Sharma says there's 0:10:52.720 --> 0:10:53.640 still a long way to go. 0:10:54.640 --> 0:11:02.080 India's China shouldn't be or wait, China was about twenty 0:11:02.160 --> 0:11:03.400 years ago or so. 0:11:03.480 --> 0:11:05.960 That's next on Wall Street Week on Bloomberg. 0:11:08.679 --> 0:11:12.920 This is Bloomberg Wall Street Week with David Weston from 0:11:13.040 --> 0:11:21.880 Bloomberg Radio. 0:11:22.200 --> 0:11:24.640 India is now the world's fifth largest economy and it 0:11:24.720 --> 0:11:27.880 is big plans to step out of China's shadow Prime 0:11:27.880 --> 0:11:29.959 Minister Narendra Modi addressing Congress in. 0:11:29.920 --> 0:11:32.280 His first official state visit here to the US. 0:11:32.280 --> 0:11:36.000 Laying out an economic model for expanding India's manufacturing nohow 0:11:36.400 --> 0:11:40.160 welcoming foreign capital and solidifying his government as a premier 0:11:40.280 --> 0:11:43.000 partner for the US and his technology companies. 0:11:43.559 --> 0:11:47.080 India willive be the our largest economics soon. 0:11:47.440 --> 0:11:50.160 The World Bank estimates that India's GDP will expand by 0:11:50.200 --> 0:11:53.240 six point three percent in twenty twenty three, outpacing China's 0:11:53.280 --> 0:11:56.400 five point six percent forecastid growth. That's drawing a lot 0:11:56.400 --> 0:11:58.880 of attention and a lot of money from foreign investors, 0:11:58.920 --> 0:12:03.040 a rotation to India, particularly among those worried that China's 0:12:03.080 --> 0:12:06.640 economic recovery is sputtering and in need of a fiscal boost. 0:12:06.920 --> 0:12:12.160 I think the Chinese have a very difficult set of 0:12:12.400 --> 0:12:14.360 challenges ahead of them. 0:12:14.840 --> 0:12:17.439 They're very serious financial overhangs. 0:12:17.760 --> 0:12:20.080 It's not just India's economic road that is giving China 0:12:20.120 --> 0:12:22.760 a run for its money. India has taken away China's 0:12:22.760 --> 0:12:25.439 title as the most populous country in the world. That's 0:12:25.440 --> 0:12:28.400 according to estimates by the UN's World Population Dashboard. 0:12:28.960 --> 0:12:32.040 Projections indicate that the size of the Chinese population could 0:12:32.120 --> 0:12:35.320 drop below one billion before the end of the century. 0:12:36.080 --> 0:12:39.800 In India, by contrast, the population is expected to continue 0:12:39.800 --> 0:12:41.640 growing for several decades. 0:12:42.240 --> 0:12:46.000 Its younger population gives it an edge attracting multinational companies 0:12:46.000 --> 0:12:49.440 from Goldman Sachs to Rolls Royce to Rakuten make in India. 0:12:49.160 --> 0:12:50.439 The world's back office. 0:12:50.679 --> 0:12:54.400 Recent economic data highlighted a rapid service sector expansion that 0:12:54.400 --> 0:12:58.199 can be attributed to the soul called global capability centers. 0:12:58.480 --> 0:13:01.640 These gccs now count for more than one percent of 0:13:01.720 --> 0:13:02.520 India's GDP. 0:13:02.880 --> 0:13:05.800 You have to think about the labor productivity issues in 0:13:05.840 --> 0:13:10.040 the country because it's already a services dominated economy in 0:13:10.120 --> 0:13:11.280 terms of the share of GDP. 0:13:11.679 --> 0:13:14.160 Apple is doing its part in heating up competition between 0:13:14.200 --> 0:13:17.440 India and China. Apple's biggest supplier of Fox Con It's 0:13:17.440 --> 0:13:20.440 set to start manufacturing iPhones in India by next year 0:13:20.600 --> 0:13:22.520 as Apple diversifies away from China. 0:13:22.840 --> 0:13:26.720 We've had considerable success and tailments in the smartphone segment, 0:13:26.880 --> 0:13:29.880 and we have been great interest from the likes of 0:13:29.920 --> 0:13:32.200 Apple and Samsung and expanding and growing here. 0:13:32.520 --> 0:13:34.240 Investors appear to be all on board. 0:13:34.480 --> 0:13:36.920 Rupee denominated bonds are on track for the longest streak 0:13:36.960 --> 0:13:39.400 a monthly buying by overseas funds in almost four years. 0:13:39.559 --> 0:13:41.040 The local currency is offering the. 0:13:41.040 --> 0:13:43.880 Second best carrier returns in Asia this year, and equities 0:13:43.880 --> 0:13:46.559 have loured almost ten billion dollars in net foreign inflows 0:13:46.640 --> 0:13:49.800 this quarter, helping India's three point four trillion dollars stock 0:13:49.840 --> 0:13:53.199 market reclaim its spot as the world's fifth largest. 0:13:53.480 --> 0:13:55.640 See the great thing about India is that with one 0:13:55.640 --> 0:13:58.120 point four billion, you could go into the penny industry. 0:13:58.120 --> 0:14:00.320 There's a market domestic. 0:14:00.280 --> 0:14:02.880 As it positions itself as a leader on the global stage, 0:14:03.040 --> 0:14:06.040 India faces challenges at home with the withering scrutiny of 0:14:06.080 --> 0:14:09.840 a Donni Group after a report from Hindenberg Research alleged 0:14:09.880 --> 0:14:11.880 accounting fraud and stock manipulation. 0:14:12.200 --> 0:14:14.320 These things don't happen every so often. 0:14:14.320 --> 0:14:16.680 They're kind of rare, and our views that we need 0:14:16.720 --> 0:14:18.720 to bet a little bit bigger when you do get 0:14:18.760 --> 0:14:20.320 these outsize opportunities. 0:14:20.560 --> 0:14:24.120 India's modern nations free must also confront some significant shortcomings, 0:14:24.320 --> 0:14:27.440 the country's deadliest rail accident in nearly three decades raising 0:14:27.520 --> 0:14:29.880 questions about outdated infrastructure. 0:14:30.160 --> 0:14:31.880 It is a huge headpack find you. 0:14:32.440 --> 0:14:35.400 They see federal elections with just a couple of months ago. 0:14:35.440 --> 0:14:37.360 There they will be Nikiya. 0:14:40.920 --> 0:14:41.280 For more. 0:14:41.360 --> 0:14:44.880 We welcome Rashier Sharma, the chair of Rockefeller International. Rashier, 0:14:44.960 --> 0:14:46.760 great to have you here on the program. You know 0:14:46.840 --> 0:14:50.040 emerging markets better than anyone, and I'm sure you also 0:14:50.200 --> 0:14:53.400 know that for years, decades, really investors have really been 0:14:53.440 --> 0:14:56.760 interested in the promise of India. There is a focus 0:14:56.840 --> 0:14:59.040 right now, if you will, on that country, on its 0:14:59.040 --> 0:15:02.640 economy and on its cap markets that seems much different 0:15:02.680 --> 0:15:04.240 than what that focus had been in the past. 0:15:04.280 --> 0:15:04.960 What's changed? 0:15:05.720 --> 0:15:08.720 Well, I think that this focus you're seeing on the 0:15:08.720 --> 0:15:11.440 back of Prime Minister Moody's visit here has a lot 0:15:11.520 --> 0:15:12.040 to do with. 0:15:11.960 --> 0:15:13.200 Geography and size. 0:15:13.760 --> 0:15:18.080 The fact that there is such disenchantment with China and 0:15:18.360 --> 0:15:22.000 India's the only country of that kind of size, and 0:15:22.440 --> 0:15:27.600 now also its economic size has become and made it 0:15:27.680 --> 0:15:28.640 so relevant. 0:15:28.800 --> 0:15:32.320 Are there lessons though, that Mody can take from Xijenping 0:15:32.640 --> 0:15:37.120 and his move to globalize the Chinese economy and avoid 0:15:37.160 --> 0:15:39.720 some of the maybe the missteps that Jijienping made. 0:15:39.920 --> 0:15:42.040 Yeah, I think it's quite clear, which is that as 0:15:42.040 --> 0:15:44.240 far as China is concerned, that if you look at 0:15:44.280 --> 0:15:49.120 China's development path, it was a fantastic development path. It's 0:15:49.160 --> 0:15:52.080 only in the last few years that it's got derailed. 0:15:52.120 --> 0:15:54.880 And it's got derailed because they took on too much debt. 0:15:55.160 --> 0:15:58.480 It's got derailed because the state there has decided to 0:15:58.480 --> 0:16:02.880 become much more interventionist flex its muscle, and because China 0:16:02.960 --> 0:16:05.600 is in a way also been retreating from the world 0:16:05.600 --> 0:16:06.680 and turning more inward. 0:16:07.080 --> 0:16:08.400 So what Mode needs to sort. 0:16:08.280 --> 0:16:13.640 Of realize today is that India is where China should be, 0:16:14.000 --> 0:16:17.920 or where China was about twenty years ago or so. 0:16:18.200 --> 0:16:20.320 It should still be a country that's opening up. 0:16:20.400 --> 0:16:23.760 It should still be a country that is backing its 0:16:23.800 --> 0:16:24.680 private sector. 0:16:24.880 --> 0:16:27.440 We were speaking a little bit earlier this week about 0:16:27.960 --> 0:16:32.160 the unemployment rate in China, specifically among the youth, something over. 0:16:32.080 --> 0:16:32.880 Twenty one percent. 0:16:33.240 --> 0:16:35.400 India isn't that far behind, I think, depending on what 0:16:35.480 --> 0:16:38.400 numbers are used, somewhere around seventeen eighteen percent here. So 0:16:38.440 --> 0:16:40.320 that's something that has to be addressed. But it's also 0:16:40.360 --> 0:16:43.200 those same demographics that I think attracts a lot of investors, 0:16:43.200 --> 0:16:45.840 the idea that they have a younger population relative to China, 0:16:45.920 --> 0:16:48.320 younger working age population, as you're saying, relative to China. 0:16:48.480 --> 0:16:51.720 This is a country that has consistently disappointed the optimists 0:16:51.720 --> 0:16:54.840 in the pessimists. So the last few years it has 0:16:54.920 --> 0:16:59.760 clearly disappointed the pessimists because it's done much better than 0:16:59.800 --> 0:17:04.000 what the worst forecasts were. Now, I think that we 0:17:04.080 --> 0:17:06.400 just have to be careful that India doesn't follow its 0:17:06.440 --> 0:17:10.439 past pattern and disappoint the optimists as well. So I 0:17:10.440 --> 0:17:13.480 think that this is about expectations, about controlling that, about 0:17:13.560 --> 0:17:16.480 letting the numbers come through, because if you look at 0:17:16.520 --> 0:17:19.919 India today, the amount of foreign investment that India attracts 0:17:20.320 --> 0:17:23.040 is still quite small as a share of its economy. 0:17:23.280 --> 0:17:25.520 Look at numbers you know, such as foreign direct investment, 0:17:25.920 --> 0:17:29.399 the amount that comes into India as is like around 0:17:29.440 --> 0:17:32.720 one percent of GDP. Now, when China was booming and 0:17:32.840 --> 0:17:36.560 really sort of growing at a nineteen percent clip, it 0:17:36.600 --> 0:17:40.040 was attracting foreign investment or foreign direct investment in particular 0:17:40.320 --> 0:17:42.800 of close to four percent of GDP. Even today, other 0:17:42.840 --> 0:17:46.359 emerging markets are attracting foreign investment of around two two 0:17:46.400 --> 0:17:49.400 and a half percent of GDP. So we need those 0:17:49.520 --> 0:17:53.439 numbers now to come through after this incredible amount of 0:17:53.480 --> 0:17:57.240 expectations and also outperformance that we have seen. 0:17:57.640 --> 0:17:59.280 In order to do that, do they need to sort of, 0:17:59.320 --> 0:18:01.760 I guess broad and what's available to invest in. One 0:18:01.800 --> 0:18:04.480 criticism that I've heard from foreign investors is that the 0:18:04.480 --> 0:18:06.439 Indian economy, at least in terms of what can be 0:18:06.480 --> 0:18:08.960 invested in, and they're primarily talking about public markets, is 0:18:09.000 --> 0:18:11.000 way narrower than what you're going to find in China 0:18:11.040 --> 0:18:13.320 any other emerging markets. You even see that in a 0:18:13.320 --> 0:18:16.719 market capitalization three trillion dollars stock market compared to mainland 0:18:16.800 --> 0:18:18.960 China stock market which is like twelve or thirteen trillion. 0:18:19.280 --> 0:18:21.240 Yeah, but that I think the stock market in India 0:18:21.280 --> 0:18:23.760 has done very well because you know, the Indian economy 0:18:23.840 --> 0:18:26.400 members also about three trillions. 0:18:26.480 --> 0:18:27.919 So but if you. 0:18:27.920 --> 0:18:29.880 Notice that where the growth is so the list being 0:18:29.880 --> 0:18:32.560 in the publicly listed company. Yes, the criticism is that 0:18:32.600 --> 0:18:34.480 a lot of the companies and industries they want to 0:18:34.520 --> 0:18:37.639 invest in aren't public yet, so they either feel like 0:18:37.800 --> 0:18:39.679 they have to find a direct way into those companies 0:18:39.800 --> 0:18:41.400 or they have to sit on the sidelines until there's 0:18:41.400 --> 0:18:42.040 a listening. 0:18:41.880 --> 0:18:44.480 Well for foreign investors and their track record are big 0:18:44.560 --> 0:18:47.400 private investments in India is quite mixed. So I think 0:18:47.400 --> 0:18:49.800 that the public markets in India have done very well. 0:18:50.440 --> 0:18:52.520 If you look at the breadth of companies in India 0:18:52.640 --> 0:18:55.439 and the diversity of the stock market that's one of 0:18:55.440 --> 0:18:57.320 the best I know of any country in the world. 0:18:57.760 --> 0:19:01.840 There are so many sectors represented out there, from manufacturing 0:19:01.880 --> 0:19:06.320 to healthcare to commodities. It's all their technology, like obviously 0:19:06.400 --> 0:19:08.520 is known. If you look at other emerging markets, they 0:19:08.560 --> 0:19:10.719 tend to be very concentrated. You know, Brazil has one 0:19:10.760 --> 0:19:13.440 or two sectors which are make up the market, or 0:19:13.640 --> 0:19:16.280 even China got so sort of taken up by tech. 0:19:16.400 --> 0:19:19.080 As far as the good performing markets concerned. 0:19:18.760 --> 0:19:20.480 So I don't think that's an issue as far as 0:19:20.720 --> 0:19:23.600 India's concern. What's an issue today is just the fact 0:19:23.640 --> 0:19:27.240 that the valuations are very high, which is reflective of 0:19:27.280 --> 0:19:30.080 the fact that expectations are very high out of India, 0:19:30.440 --> 0:19:33.920 and those is what those need to come through. 0:19:33.960 --> 0:19:34.120 Now. 0:19:34.200 --> 0:19:36.240 We need to see the numbers come through. And you 0:19:36.280 --> 0:19:38.720 can never have an attitude that where else will the 0:19:38.760 --> 0:19:40.800 money go, It's got to come to India. I think 0:19:40.800 --> 0:19:44.720 that that attitude can be problematic. So we're all sort 0:19:44.760 --> 0:19:46.840 of you know, I think that today you'll have to 0:19:46.880 --> 0:19:49.800 be a very big contrariant to take a bet against 0:19:49.880 --> 0:19:54.280 India because the fundamentals do look pretty good as far 0:19:54.320 --> 0:19:58.359 as India's concerned, but also the fact that expectations and 0:19:58.440 --> 0:20:02.800 the hype around India is something which is quite unprecedented. 0:20:03.000 --> 0:20:04.760