Speaker 1: Brought to you by Bank of America. Merrill Lynch, committed
Speaker 1: to bringing higher finance to lower carbon named the most
Speaker 1: innovative investment bank for climate change and sustainability by the Banker.
Speaker 1: That's the power of global connections. Bank of America, North
Speaker 1: America Remember f D I C. This is Masters in
Speaker 1: Business with Barry Ridholds on Bloomberg Radio. This week on
Speaker 1: the podcast, we have Morgan Stanley's global equity strategist, Rusher Sharma.
Speaker 1: He is also the head of Emerging Markets for Morgan Stanley.
Speaker 1: A person who may not be well known to the
Speaker 1: investing public, but is very influential on Wall Street. Frequently
Speaker 1: writes for for for outlets like The New York Times,
Speaker 1: The Wall Street Journal, UH, the FT, describing what's happening
Speaker 1: UH in the world and in the global economy. His
Speaker 1: most recent book is called The Rise and Fall of Nations.
Speaker 1: His previous book was on Breakout Nations and if you
Speaker 1: are at all interested investing overseas, he has some very
Speaker 1: very specific ideas about what you should and shouldn't do.
Speaker 1: And I don't mean by Brazil, sell Russia or anything
Speaker 1: like that. It's really his process that's so good. He
Speaker 1: the most recent book, The Rising Full Nations. It's a
Speaker 1: ten point treatise on these are the ten steps you
Speaker 1: should make before reaching a decision about buying or selling
Speaker 1: any particular region in the world. UH. He's very rigorous
Speaker 1: and analytical, and his thought process is different than from
Speaker 1: from what all too many people I think UH do
Speaker 1: when they approach emerging markets. I found it to be
Speaker 1: a fascinating conversation and I think you will as well.
Speaker 1: With no further ado, my conversation with Rucier Sharma. This
Speaker 1: is Master's in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: My special guest today is Ruscier Sharma. He is Morgan
Speaker 1: Stanley's chief Global strategist and head of Emerging Markets. He
Speaker 1: has quite the fascinating background. UH. He manages about twenty
Speaker 1: billion dollars with a team of twenty five people. He
Speaker 1: is a frequent contributor to The Wall Street Journal, Financial Times,
Speaker 1: Foreign Affairs. Raised in Delhi, the son of a military officer,
Speaker 1: and had written for India's largest financial daily, UH, the
Speaker 1: Economic Times since the age of seventeen. Rusher is also
Speaker 1: the author of several books, including Breakout Nations, a two
Speaker 1: thousand and twelve best seller, and more recently The Rise
Speaker 1: and Full of Nations, uh New York Times bestseller that
Speaker 1: just came out this year. Ruscier Charma, welcome to Bloomberg
Speaker 1: to be your Mary. Thanks. So I have so much
Speaker 1: stuff to go over with you. I'm I'm fascinated by
Speaker 1: your background and and your travel history. How did you
Speaker 1: develop a love for international travel? Yeah, you know, like
Speaker 1: I've had a nomadic existence, I um. I was born
Speaker 1: in the south of India, and then because my father,
Speaker 1: as you mentioned at the outset, was in the services.
Speaker 1: He was a naval officer and also spent some time
Speaker 1: as a diplomat in overseas locations like Singapore. So that's
Speaker 1: why I had a nomadic existence, traveling from one place
Speaker 1: to another. I think that may have some way seated
Speaker 1: this interest in global affairs at a young age. So
Speaker 1: before you started at Morgan Stanley in six how many
Speaker 1: countries have you lived in or at least visited prior?
Speaker 1: I had lived in for a large part of my
Speaker 1: life in India and then also in Singapore. And although
Speaker 1: I had visited other places, I um, you know, like
Speaker 1: apart from Europe and being to London, et cetera. But
Speaker 1: I'd say that it was my education in Singapore. I
Speaker 1: went to a school they called the United World College,
Speaker 1: and uh, at a very young age, they sort of
Speaker 1: paid a lot of attention because it was an international school.
Speaker 1: They paid a lot of attain to sort of uh
Speaker 1: showing you about exactly like about global affairs and and
Speaker 1: it's also like these are things which are so hard
Speaker 1: to know when or water or y. But at a
Speaker 1: someone like at a very young age, I was always
Speaker 1: very interested in current interfairs, whether it was Indian current
Speaker 1: affairs or global current interfairs. And I think that that's
Speaker 1: what really sort of uh set me in motion here.
Speaker 1: So so let's talk about your job at Morgan Stanley.
Speaker 1: You're you're their global chief strategist as well as head
Speaker 1: of Emerging Markets. What do those jobs and tell? But
Speaker 1: I'm basically like an investor, So the investment management side
Speaker 1: I spend. I've always been on the investing side, and
Speaker 1: uh so, um, I run money or managed money. So
Speaker 1: is that is that number of ballpark twenty billion dollars? Yes,
Speaker 1: that's right, just over twenty billion dollars in sort of
Speaker 1: assets under management and also sort of think about global
Speaker 1: macro issues for the firm, and so that's what sort
Speaker 1: of gives me my other title as being the chief
Speaker 1: Global Strategist. So how much of that money is dedicated
Speaker 1: to e M and how such of it is? Well,
Speaker 1: the money I directly manage is mostly dedicated to e M. Yeah, um,
Speaker 1: we also have some uh some global money which we manage,
Speaker 1: but mostly it is money that I manage. But in
Speaker 1: terms of the chief Global Strategies footprint really involves thinking
Speaker 1: a lot about the major global issues and interacting with
Speaker 1: clients and telling them about that. So there's no substitute
Speaker 1: for for boots on the ground and seeing contributely. Yes,
Speaker 1: how often are you on the road? How many countries
Speaker 1: do you go to a year? And what parts of
Speaker 1: the world have you been to recently? Yeah, I try
Speaker 1: an average, I'd say about one country a month, which is,
Speaker 1: you know, basically pick a country and spend nearly a
Speaker 1: week there or at least a few days there. If
Speaker 1: it's a small country, then maybe just go to the region.
Speaker 1: So that's what I've done for the last twenty years. Really, Yeah,
Speaker 1: because I find that there are two things here, you know,
Speaker 1: which are sort of very important out here. One is
Speaker 1: the fact that when you're on the ground, it focuses
Speaker 1: your mind like never before. Like I consider in my
Speaker 1: face and I can read all I want about Philippines,
Speaker 1: and I just will not get that involved with the
Speaker 1: Philippines until I go to the Philippines. And then when
Speaker 1: you are there, you're basically sort of you know, covering it, uh,
Speaker 1: top down to bottom up in terms of your meeting
Speaker 1: the policymakers, meeting government people, central bank people, You're meeting
Speaker 1: CEOs of companies, and then also meeting investors and you know,
Speaker 1: sort of other players in the marketplace. So I find
Speaker 1: that really fascinating, that one that it focuses your mind
Speaker 1: when you're on the ground, and to that you end
Speaker 1: up always picking up little details about that country which
Speaker 1: you wouldn't have if you were just doing an office
Speaker 1: in a dry research report. That's I'm doing the math
Speaker 1: in my head, one country a month for twenty years.
Speaker 1: How many countries have you been? I assume there are
Speaker 1: a few repeats, you know there are are there even
Speaker 1: two hundred forty countries? Aren't well, roughly that much. I
Speaker 1: think the UN councils over two hundred countries, So you know,
Speaker 1: like I counted the other day. Uh, and I've been
Speaker 1: to just over sixty countries. That's pretty good, that's pretty
Speaker 1: but you know, like that's amazing that I think that
Speaker 1: I've traveled so much, but I haven't that only been
Speaker 1: to sixty countries out of whatever two d odd countries
Speaker 1: that you can possibly go. Tom having said that, of
Speaker 1: a few key countries that I do visit repeated, like China, India,
Speaker 1: those are the kind of places where I've been to
Speaker 1: virtually every year. So this year, when you go overseas
Speaker 1: and you visit people, what do they want to talk
Speaker 1: about besides the US elections? Well, I mean that's really
Speaker 1: top of mind. I mean, there's never been dominating every absolutely,
Speaker 1: there's never been so much interest in the US elections
Speaker 1: or in US politics as has been the case this year.
Speaker 1: And you know, like yeah, even after the election was over,
Speaker 1: even now, people are still sort of dissecting it in
Speaker 1: a way that the you know, because I think that
Speaker 1: that's a that's the big difference that had someone like
Speaker 1: Hillary won the election, then I think that what would
Speaker 1: have happened was that in terms of that, I don't
Speaker 1: think the interests would have been that high. So whether
Speaker 1: we like Trump or not. The one thing which is
Speaker 1: great for I think is ratings and keeping the interest
Speaker 1: very high in US politics, no doubt about that. So
Speaker 1: given their interest in the U S election and given
Speaker 1: what Trump has said about um trade policies, what sort
Speaker 1: of reaction have you been hearing since the election from
Speaker 1: contacts overseas well? I think that, you know, there's a
Speaker 1: big fair factor just now because I think that in
Speaker 1: the emerging markets there's been a huge sort of shift
Speaker 1: in sentiment, which is that there was a sense before
Speaker 1: the election that you know, there's some sort of recovery
Speaker 1: as we under underwe in emerging markets. But after the
Speaker 1: election there's been a dramatic shift in mood because now
Speaker 1: all of a sudden, people are wondering that does this
Speaker 1: mean that the US is going to turn much more inward,
Speaker 1: more protectionist and the one place where sentiment is totally
Speaker 1: beaten down to fight that's my next top all, So
Speaker 1: I'm gonna go. That's my next country I'm gonna visit
Speaker 1: is Mexico. Has to be. Yeah, I'm Barry Ritolts. You're
Speaker 1: listening to Masters in Business on Bloomberg Radio. My special
Speaker 1: guest today is rusci Or Sharma. He is Morgan Stanley's
Speaker 1: Chief Global strategist and a world traveler. Most recently, he
Speaker 1: is the author of The Rise and Fall of Nations,
Speaker 1: Forces of Change in the Post Crisis World. Let's talk
Speaker 1: a little bit about the four d s you write
Speaker 1: about in the book depopulation, deglobalization, de leveraging and d democratization.
Speaker 1: I bet when you wrote it you weren't trying to
Speaker 1: be ironic. But here we are, and and each of
Speaker 1: these things are now much more intense subjects than they
Speaker 1: were just a few weeks ago. So let's start with depopulation.
Speaker 1: First of all, what is depopulation and how does population
Speaker 1: impact various countries? Yeah, look, you know, in terms of
Speaker 1: there's means uh so much handwringing over the last few
Speaker 1: years about why economic growth is so low across the world,
Speaker 1: and this is not just a US phenomena. It's across
Speaker 1: the world. In fact, there is no region in the
Speaker 1: world today which is growing at the pace it was
Speaker 1: before the global financial crisis of two thousand and eight.
Speaker 1: And one of the most underappreciated factors for this low
Speaker 1: economic growth environment is the change in demographics across the world,
Speaker 1: not just in the Western world as popularly believed, but
Speaker 1: also in large parts of the emerging world China, Korea,
Speaker 1: Taiwan and Russia, really because because the assumption has been
Speaker 1: that when you look at the Western world, you know,
Speaker 1: the Japanese or an aging society with no immigration and
Speaker 1: a limited number of young people. In China, their one
Speaker 1: child rule really has impacted um their demography. The US
Speaker 1: seems to be growing faster than Europe, but the assumption
Speaker 1: is always well, emerging markets in African South America, they
Speaker 1: have to be populating wildly. Are you saying that's not
Speaker 1: the case. That's true, but there's been a massive slow
Speaker 1: down in the growth of population across the world, and
Speaker 1: of course in places such as Germany or even Russia
Speaker 1: and all it's turned negative. The working ash population increases,
Speaker 1: really yes, and in China for the first time it's
Speaker 1: working ash population in fact fail last year. So these
Speaker 1: are huge changes which are taking place. But even in
Speaker 1: the very populous countries which you talk about in Africa
Speaker 1: and in places like India and Pakistan, the slow down
Speaker 1: in population growth rate has been quite sharp. Really, Like,
Speaker 1: as you know, there are two drivers of economic growth,
Speaker 1: which is one is the increase in labor force, and
Speaker 1: two is the increase in productivity. Those are the two
Speaker 1: things which drive economic growth. And when we look back
Speaker 1: in history, what we're gonna see is this, which is
Speaker 1: at the period from nineteen fifty till about two thousand
Speaker 1: and eight was the fastest growing period in the history
Speaker 1: of economic development, much faster than even the growth rates
Speaker 1: we saw in the Second Industrial Revolution in the late
Speaker 1: nineteenth century, when you had a massive movement productivity. And
Speaker 1: the reason for that was that the world's population and
Speaker 1: therefore the world's labor force, never grew at such a
Speaker 1: rapid pace as was the case between nineteen fifty and
Speaker 1: two thousands and eights. So so let's unpack that a
Speaker 1: little bit. I'm hearing you saying that there was used
Speaker 1: post war baby boom. We all know that that was
Speaker 1: not just the US but global. Yes. Um, you also
Speaker 1: had a massive uptick in productivity. Yes, at least until
Speaker 1: let's go at the late nine ten nineties, where there's
Speaker 1: an argument to be made that there's still an increase
Speaker 1: in productivity, we're just measuring it all wrong. And then third,
Speaker 1: we're now at a point where population growth has tailed off,
Speaker 1: and that's the new normal. That's the reason that the
Speaker 1: economy being as the single most important reason. As you said,
Speaker 1: like on productivity, there's still a debate where many people
Speaker 1: think it's being underestimated, mismeasured and stuff. But on the
Speaker 1: trends and demographics there can be no debate because those
Speaker 1: trains there to be seen. And here's the basic train,
Speaker 1: which is that still the middle of the last decade,
Speaker 1: the world's working each population was growing at a pace
Speaker 1: of about two percent. Here since there's been falling off
Speaker 1: a cliff and today that rate is down to one
Speaker 1: percent a year. Do you think we're going to flatten
Speaker 1: out or even go negative? Well, I don't know about
Speaker 1: being negative, but the peace is set to slow down further.
Speaker 1: Because that's fascinating because we've my whole life, I've heard
Speaker 1: these dystopian forecasts that overpopulation ten billion, fifteen billion, twenty billion,
Speaker 1: what are we gonna do. We may actually reach, just
Speaker 1: basis and sort of fun a population that we tap
Speaker 1: out at eight nine billion. And yeah, I mean, the
Speaker 1: world's population is still set to increase further, but the
Speaker 1: pace has slowed down dramatically. So that's the important thing,
Speaker 1: and that's the very important variable for economic growth, which
Speaker 1: is Now let me ask you why is the population slowing?
Speaker 1: Because I would have assumed, well, wealthy countries tend to
Speaker 1: have better healthcare, access to birth control, fewer children. But
Speaker 1: you're implying this is a global phenomena. Yeah, but I
Speaker 1: think that it's also because you've had an increase in
Speaker 1: female participation in the labor force in many countries, and
Speaker 1: so people are having less babies in in general. So
Speaker 1: I think that it's also like a lifestyle issue. It's
Speaker 1: a it's a demographic issue in terms of the mortality
Speaker 1: rates have dropped everywhere, and so have the fertility rates
Speaker 1: have dropped even faster. You know, fertility rates drafting faster.
Speaker 1: What's the driver of that? Well enough example, take India,
Speaker 1: you know, my homeland, which is that that the real
Speaker 1: rate they used to be about six or so in
Speaker 1: the nine sixties, that's down to two and a half.
Speaker 1: Because you know, there are much more sort of sensitive
Speaker 1: about families about how many children that they're having. Uh,
Speaker 1: you know, so that that sort of paces slowed down
Speaker 1: dramatically back there. I could talk about population all day.
Speaker 1: Let's move on to the other d's deglobalization. Yeah, given
Speaker 1: the results of the election. Let's talk a little bit
Speaker 1: about trade barriers and how important free trade is to
Speaker 1: the global economy. Yeah, you know, there are three drivers
Speaker 1: I think of globalization, right, so we think of it
Speaker 1: mostly in terms of trade. But the other two drivers
Speaker 1: are capital, right, the free movement of capital between boarders,
Speaker 1: and the third is doe with immigration, trade, capital and immigrants.
Speaker 1: So these are the three tenets of traditional globalization. All
Speaker 1: these three increased massively in the nineteen eighties and nineteen nineties,
Speaker 1: right up until the financial crisis of two thousand and eight.
Speaker 1: You've got explosion in all these three. Since two thousand
Speaker 1: and eight, they've all slowed down dramatically. So cross border
Speaker 1: capital movements much slower than much slower, absolutely, I mean
Speaker 1: like those are virtually collapsed. And we know immigration has
Speaker 1: certainly can hit actually slowed down, and trade and trade
Speaker 1: has slowed down. That you know, we have we've all
Speaker 1: been used to a world where trade has increased at
Speaker 1: a rate which is much much faster than global economic growth.
Speaker 1: And that's not a one off course I've seen the
Speaker 1: occasional monthly trade is a little less. No, it's a
Speaker 1: month you're phenomenon. I'm saying that This is persistent now
Speaker 1: on a train basis this decade, and if you look
Speaker 1: at the policies that the governments are taking, I think
Speaker 1: that these trends will only intensify. And the election, which
Speaker 1: you pointed out just now in the US is basically
Speaker 1: another traind an answer. I trade ell actually some degree,
Speaker 1: I mean, we'll see what actually of TPP and done with.
Speaker 1: I think a TPP et cetera are dead. I mean,
Speaker 1: I really don't think that those things after we're going
Speaker 1: to see a change. And is it realistic to change now?
Speaker 1: It's gonna be much more difficult. But I think that
Speaker 1: you know, that is something that we're likely to like
Speaker 1: to obviously see touched upon. As I said, at this stage,
Speaker 1: it's very hard to know what all Trump is going
Speaker 1: to follow through on, in which on what he said
Speaker 1: in the election, But I think the direction is clear,
Speaker 1: which is on all these three things. I do not
Speaker 1: see a major pickup taking place anytime soon. And here
Speaker 1: at history is very instructive. In fact, I've looked at this,
Speaker 1: which is that globalization tends to move in waves, which
Speaker 1: are multi decade waves. We saw a big increase in
Speaker 1: globalization take place also in the late nineteenth century right
Speaker 1: up until the first decade of the twentieth century, and
Speaker 1: then from nineteen fourteen onwards with the outbreak of the
Speaker 1: First World War, we've got a big decline in globalization
Speaker 1: which lasted for many decades. So my sort of bet
Speaker 1: at this point is that the globalization is here to stay.
Speaker 1: This is the new buzzword and a multi year traind
Speaker 1: not just uh, you know, like a freak data event.
Speaker 1: I'm very results. You're listening to Masters in Business on
Speaker 1: Bloomberg Radio. My special guest today is Russier Sharma. He
Speaker 1: is Morgan Stanley's chief Global strategist and head of Emerging
Speaker 1: Markets and manages over twenty billion dollars in assets. He
Speaker 1: is a frequent contributor to various media outlets and is
Speaker 1: the author of The Rise and Fall of Nations and
Speaker 1: Breakout Nation, which was a highly regarded book that came
Speaker 1: out in So let's talk about that phrase. What is
Speaker 1: a breakout nation? Right at that point in time when
Speaker 1: I wrote the book, it was really sort of to
Speaker 1: bust the myths of the brick countries, which is that
Speaker 1: there was so much hype about the brick nations last decade. Right,
Speaker 1: Thank you for that, because it seems like Brick was
Speaker 1: created because it was an amusing acronym, but really, what
Speaker 1: is it that ties China? But I think yeah, but
Speaker 1: I think if to understand the sociology as to why
Speaker 1: it became so popular, which at that last decade, we
Speaker 1: saw an unprecedented boom in emerging markets. Virtually every emerging
Speaker 1: market did well last decade in economic growth terms, equity
Speaker 1: market performance, financial terms, every emerging market did well. And
Speaker 1: then Brick captured the four largest emerging markets. That's it.
Speaker 1: So this was a great marketing acronym, but like all
Speaker 1: marketing creations, it had a use markets. So so I
Speaker 1: think that there's there were a flurry of acronyms which
Speaker 1: came out even after Brick, but they've all failed since
Speaker 1: and Brick today appears like such a last decade concept.
Speaker 1: So the book in two thousand and twelve, which I wrote,
Speaker 1: Breakout Nations, was that, Okay, the Brick era is over.
Speaker 1: Which are the next countries which are likely to do
Speaker 1: well across the world. Let's talk about that. What are
Speaker 1: some of the countries that may not make for a
Speaker 1: perfect acronym but have a lot of growth potential? Yeah,
Speaker 1: you know, when I wrote that book. At that point
Speaker 1: in time, I had pointed out in the emerging world
Speaker 1: to countries such as Philippines, Indonesia, I had pointed out
Speaker 1: to some countries in Eastern Europe such as Poland, Czech Romania,
Speaker 1: and then I'd also sort of pointed out to some
Speaker 1: so called frontier markets. Now I'm out to find the
Speaker 1: difference between emerging and frontier. Yeah. I think the difference
Speaker 1: between emerging in frontier, at least in the investing world,
Speaker 1: is that emerging markets are seen to be mainstream countries
Speaker 1: in which you can easily invest and get your money
Speaker 1: like in and out. Frontier tends to be the next category,
Speaker 1: which are markets which are slightly off the beaten downpath.
Speaker 1: Give us a few examples. Yeah, For example, like in
Speaker 1: the frontier markets today, you would have countries such as Kazakhistan,
Speaker 1: or you would have Romania. But the largest ones you
Speaker 1: would have our Nigeria, Vietnam. I was going to ask
Speaker 1: you about Vietnam. Frontier market, not a emerging market, not
Speaker 1: as yet. It's a classification issue, right, which is that
Speaker 1: the difference is not that much, But it's a classification issue.
Speaker 1: So how do you define that when I think of Vietnam.
Speaker 1: I think of a country that is rapidly adopting Western
Speaker 1: technology and and all variations of capitalism, a lot of
Speaker 1: outsourcing to Vietnam. They're a competitor to China, and they
Speaker 1: seem to be booming. Yeah. I mean, like Vietnam is
Speaker 1: a country that I'm optimistic on in my in my
Speaker 1: latest book, when apply the ten rules, Vietnam does come
Speaker 1: up fairly well. What about Turkey. Turkey is one of
Speaker 1: those countries. Turkey the country on which I've changed my mind,
Speaker 1: which is that Turkey used to be a country which
Speaker 1: in Breakout Nations I was relatively optimistic on. But I
Speaker 1: think that from about two thousand and thirteen, when Urduan
Speaker 1: began to lose the plot, I think that since then
Speaker 1: I've been much more skeptical on Turkey, and remains skeptical
Speaker 1: on Turkey today because Turkey is a country which is
Speaker 1: running massive financial imbalances, one of the largest current account
Speaker 1: deficits of any emerging market. It has not been able
Speaker 1: to correct that despite the very sharp fall in commodity prices.
Speaker 1: And then you have the case of Urduan. I mean,
Speaker 1: here is a leader who seems to have overstayed his
Speaker 1: welcome in power. When Urduan first came to power, he
Speaker 1: was a reformer. He wanted to take Turkey closer to Europe.
Speaker 1: He implemented lots of reforms to try and meet the
Speaker 1: requirements towards a move to the European Union. But if
Speaker 1: you look at how he's governed in the last few years,
Speaker 1: it's been very different. That his entire focus has been
Speaker 1: on cementing his hold on par even if that comes
Speaker 1: at a major economic cost. So let's talk about something
Speaker 1: related to that. The old line I was familiar with
Speaker 1: was geography is destiny, right, but your variation of it
Speaker 1: is look for the geographic sweet spa. So what is
Speaker 1: the geographic sweet spot and what countries are are in it? Yeah, So,
Speaker 1: like what I mentioned there is that if you look
Speaker 1: at the history of economic development, countries, particularly the mid
Speaker 1: too small countries have done well when they are in
Speaker 1: the right trade routes. So if you have in some
Speaker 1: of the world's major trade routes and those countries find
Speaker 1: themselves in those trade routes, they have done pretty well.
Speaker 1: So those countries today, Vietnam is a classic case of that.
Speaker 1: You know, like it's there in the trade routes south
Speaker 1: of you know, like China, and in terms of how
Speaker 1: like Vietnam is doing, she Lanka is another example, like
Speaker 1: strategically very well located. Then you have in the Middle
Speaker 1: East Dubai, you know, which is sort of done well.
Speaker 1: So just just the fortuitousness of being, yes, near deep
Speaker 1: water port, near near trade routes, etcetera. Yes, I think
Speaker 1: that's something which is a you know, which is a helpful.
Speaker 1: Now again, there are many countries who can completely waste
Speaker 1: that dividend that they get from being in the right
Speaker 1: geography right, so it's a huge help to store wars
Speaker 1: exactly like it's a huge help to start with, especially
Speaker 1: for a small to mid size country, and you know,
Speaker 1: Singapore Hong Kong in the past have shown that. Having
Speaker 1: said that, I this is one thing which I think
Speaker 1: I have to adjust to the new reality that in
Speaker 1: a deglobalizing world, which we just spoke about, I think
Speaker 1: in that environment to be able to export your way
Speaker 1: to prosperity is going to be much more difficult. So
Speaker 1: I think the world is now beginning to change on
Speaker 1: that that it's no it's no longer that easy to
Speaker 1: export your way to prosperity and being in the right
Speaker 1: geographical sweet sport is still helpful, but not as helpful
Speaker 1: as it used to be when the world was globalizing.
Speaker 1: I'm very hults. You're listening to Masters in Business on
Speaker 1: Bloomberg Radio. My special guest today is Ruscier Sharma. He
Speaker 1: is Morgan Stanley's chief Global strategist and head of Emerging Markets.
Speaker 1: Let's talk a little bit about some of those emerging
Speaker 1: markets and and some of the issues that we see
Speaker 1: going on. I've noticed that people have a tendency to
Speaker 1: really over generalize about emerging markets. Are they all that
Speaker 1: similar or are there that many dramatic differences from country
Speaker 1: to country. There are dramatic differences, and over time those
Speaker 1: differences show up. But I think that in the financial
Speaker 1: community it's very easy to club them together, especially in
Speaker 1: a world where passive investing is on the rise, and uh,
Speaker 1: you know, people just want to sort of okay, emerging
Speaker 1: markets are doing well, and they just put something in
Speaker 1: an eat have blindly and and sort of get on
Speaker 1: with it. I think that it's become easy to generalize.
Speaker 1: But yeah, over time, the differences are huge, and the
Speaker 1: performance of countries is very stark. In terms of like
Speaker 1: the differences over time, like this decade, Brazil, Russia have
Speaker 1: performed so poorly. On the other hand, you have countries
Speaker 1: like Philippines or even like in Indonesia, which I've done
Speaker 1: much better, countries like India which are still sort of growing.
Speaker 1: China's economic prospects are changing for the worst very quickly.
Speaker 1: So let's address a few of those countries. So let's
Speaker 1: let's look at the two biggest one you mentioned, Russia
Speaker 1: and China. I've been hearing about Chinese debt now for
Speaker 1: a decade. Jim Chanos famously started planning the table five
Speaker 1: years ago about this. But really this now, more than ever,
Speaker 1: we're seeing China appearing to really have taken on a
Speaker 1: whole lot of debt. How much trouble is China in
Speaker 1: and can they grow their way out of it? Because
Speaker 1: I've dedicated in an entire chapter in my book to
Speaker 1: the issue of debt. I call it the Kiss of debt.
Speaker 1: That in the ten rules that I look at to
Speaker 1: figure out if a country is going to do well
Speaker 1: or not do well in the foreseeable future, the one
Speaker 1: in which I have the maximum confidence in is the
Speaker 1: Kiss of debt rule. Why because we did a lot
Speaker 1: of research on this, that's my team and I and
Speaker 1: what I found out here was that if a country's
Speaker 1: debt increases very sharply over a short time horizon, that
Speaker 1: country always gets into trouble. It's not going to do
Speaker 1: with the level of debt. It's got to do with
Speaker 1: the pace of increase. If you take on too much
Speaker 1: debt over a very short time horizon, you're bound to
Speaker 1: make bad investments that are bound to be bad loans,
Speaker 1: a lot of mal investment in the economy, and that's
Speaker 1: going to come back to haunt that economy and China.
Speaker 1: The dead binge that China has been on this decade
Speaker 1: is unprecedented. So the question about that, and I don't
Speaker 1: know if you can answer this. They seem to be
Speaker 1: making so much money, They built so many factories, they
Speaker 1: were attracting so much economic activity. Why would they have
Speaker 1: to take on all that? Yeah, that's my point, which
Speaker 1: is that instead ambition to grow at a rate which
Speaker 1: is no longer feasible or no longer sustainable. So till
Speaker 1: two thousand and eight, until the global financial crisis, China's
Speaker 1: dead situation was relatively stable. So you know, China's dead
Speaker 1: was increasing, but increasing in line with the you know,
Speaker 1: with the underlying economic growth rate. So it was relatively stable.
Speaker 1: After the global financial crisis, and when things started to
Speaker 1: slow down across the world, you know, like you're a
Speaker 1: major slowdown, their exports got very badly hit. They still
Speaker 1: wanted to grow at a rate which they thought was
Speaker 1: right for them. And this is one of the problems
Speaker 1: that you have in a sort of that kind of
Speaker 1: economic system, which that they come up with a growth
Speaker 1: rate and then just want to achieve that no matter what,
Speaker 1: regardless of what the reality on on the growth pure
Speaker 1: absolutely so I think that that's what China has been doing,
Speaker 1: which is that it wants to keep growing at a
Speaker 1: target it sets, which is, you know, six to seven percent.
Speaker 1: That target is set with only one objective, which is
Speaker 1: in two thousand and ten, they decided we have to
Speaker 1: double our economic size by the end of the decade.
Speaker 1: And so the man that they did were that we
Speaker 1: need a growth of eight percent first and seven and
Speaker 1: six to get there. And so they're following that path,
Speaker 1: but they're taking on debt like never before. There's one
Speaker 1: simple statistic about China which would worry us. At the
Speaker 1: peak of the US housing bubble in two thousand and seven,
Speaker 1: it was taking three dollars of debt to create a
Speaker 1: dollar of GDP growth in the United States. Today, in China,
Speaker 1: it's taking four dollars of debt to create a dollar
Speaker 1: of GDP growth in that country. That's been the explosion
Speaker 1: in debt in China this decade. Your reference Russia before also,
Speaker 1: I've always sort of of Russia as a very challenging
Speaker 1: place to invest corruption rule lord just you know, and
Speaker 1: this is before Putin, and now it's even more challenging.
Speaker 1: Is Russia and investable nation. But I think there are
Speaker 1: pockets of investment out there. But I think as far
Speaker 1: as Russia is concerned, it's really gone what I call
Speaker 1: X growth, which is that X growth, yeah, which is
Speaker 1: that The best you can hope out of Russia for
Speaker 1: economic growth rates now is one or two percent. You know,
Speaker 1: this is not an emerging market type growth rate that
Speaker 1: you would think. It's demographics are terribly against it. They're
Speaker 1: losing educated populations and total populations. And and then what's
Speaker 1: happening also is the fact that the investment environment Russia
Speaker 1: is very difficult. The only thing that Putin has done
Speaker 1: to his credit is made the best of a bad situation.
Speaker 1: He's trying his best to make sure that the country
Speaker 1: doesn't go bankrupt at these loil prices. So he's adopted austerity.
Speaker 1: He's allowed the central bank to devalue the currency and
Speaker 1: to raise interest rates to keep inflation under control. He's
Speaker 1: really doing that. So I think that his game is
Speaker 1: very clear, which is that keep the economy from imploding,
Speaker 1: particularly on metrics that really hurt the people, which is inflation.
Speaker 1: And he focuses much more on invoking nationalism to remain popular.
Speaker 1: But the economy is ex growth that I mean, like
Speaker 1: it's now flat flat at best, you know, one to
Speaker 1: t percent type economic growth rate from Russia for the
Speaker 1: foreseable future. We're speaking with Morgan Stanley is Russia Sharma
Speaker 1: about emerging markets. He's the author of the Rise and
Speaker 1: Fall of Nations. Let's get a little macro in our
Speaker 1: conversation about em When I look at forces around the world,
Speaker 1: are emerging market forces more susceptible to boom and bus
Speaker 1: cycles than developed nations or is it a similar pattern
Speaker 1: that they follow relative to what the US and Japan
Speaker 1: and Europe experiences. Yeah, I think that again, we have
Speaker 1: to sort of classify which emerging market we're talking about,
Speaker 1: Like the Chinese stock market. The domestic stock market is
Speaker 1: like it's had it's had a wild run for the best,
Speaker 1: a wild run which is unprecedented, right, I mean, as
Speaker 1: one sort of wise person put in that, it's like
Speaker 1: a casino without rules. Right, So what about the sense
Speaker 1: what about indexes in in and markets in India. Yeah,
Speaker 1: but I'm saying that I think that India has a
Speaker 1: healthier stock market. I mean it's a deeper capital market,
Speaker 1: So I think that India is better deeper capital markets
Speaker 1: in China, well in terms of the domestic market. Yeah,
Speaker 1: in terms in terms of by deeper, I mean what
Speaker 1: I mean is more well regulated to work we have
Speaker 1: in China and less susceptible to the booms and bust.
Speaker 1: To the Chinese stock market, I mean the chance market
Speaker 1: is very deep in terms of the amount of liquidity
Speaker 1: and turnover that huge in China, but it seems like
Speaker 1: it's a housewife's day trading phenomena. That yeah. I mean
Speaker 1: there are parts of it, you know, which are that too.
Speaker 1: So that's the problem. Like the Chinese stock market, the
Speaker 1: Chinese stock market has never reflected economic growth in China,
Speaker 1: there's no connection between economic growth and the Chinese stock
Speaker 1: markets performance of the last twenty three years. Now, some
Speaker 1: people would argue that it's hard to draw a straight
Speaker 1: line between US economic growth and the stock market. They
Speaker 1: don't always sync up exactly there over long periods of time.
Speaker 1: A long expansion tends to lead to a long ball market.
Speaker 1: But we have a tendency to sort of occasionally go up.
Speaker 1: Just look at the gains of the past seven years
Speaker 1: of the market relative to the comes true. But you know,
Speaker 1: but at least like you get a directionally there's yeah,
Speaker 1: you know, I mean, you know direction, you get some
Speaker 1: similarity on overlaid on this. When you get such easy
Speaker 1: monetary policy, you end up getting you know, financial excesses.
Speaker 1: But in China's case, you can line it's like totally random.
Speaker 1: So I'm saying that, and that's not true for most countries.
Speaker 1: If you draw a line over time over how the
Speaker 1: stock market has overall economy has done, there is a relationship.
Speaker 1: Let's talk about South America, where here in the United
Speaker 1: States we really don't pay a whole lot of attention
Speaker 1: to as investors. There's been some social turmoil, there's been
Speaker 1: some political turmoil in South America. What do you see
Speaker 1: going on there and what's of interest to you? But
Speaker 1: I think that Latin America is one place which is
Speaker 1: breaking for the better on the political front, right that
Speaker 1: at a time when populism is on the rise in
Speaker 1: so many parts of the Western world, Latin America is
Speaker 1: seeing something very interesting, which that you are seeing the
Speaker 1: return of economic orthodoxy in Latin America and names in countries.
Speaker 1: For example, you take the classic case of Brazil that
Speaker 1: in Brazil's case, that that country had really sort of
Speaker 1: gone from being the start of the emerging world last
Speaker 1: decade to being the posted child of ward. All is
Speaker 1: wrong with the entire emerging world. Just there are messes,
Speaker 1: their complete mess But having said that, in the Dilma world,
Speaker 1: after she was impeached and you have a new administration
Speaker 1: out there, the kind of reforms that they're taking place
Speaker 1: are quite encouraging. Now it's a terrible situation still, but
Speaker 1: at the margin, starting to turn around, starting to turn around,
Speaker 1: and what they have done is quite remarkable in terms
Speaker 1: of starting the cleanup process after the big mess which
Speaker 1: was left behind by the previous government. You talk about reforms,
Speaker 1: you discuss why reforms are so important to emerging market economies.
Speaker 1: Go into a little detail about that, and you mentioned
Speaker 1: it in the book. I know you've written about it
Speaker 1: in the past. Why is economic reforms so significant to
Speaker 1: emerging market countries? Well, I think that you know, reform
Speaker 1: is significant for all countries, but in emerging markets there's
Speaker 1: so much to be done because there's so much of
Speaker 1: the economy which is functioning in an inefficient way in
Speaker 1: these countries and therefore the per capita in contains to
Speaker 1: be much lower that there's so much which can be
Speaker 1: done to clean that up and for those countries to
Speaker 1: move to a much higher per capita incomplain. But I mean,
Speaker 1: so it's just the function of you gets get her
Speaker 1: act together. The population makes more, has a higher income
Speaker 1: per person, and everybody is But the reforms have to
Speaker 1: be sort of very country specific in terms of what's required,
Speaker 1: right Like give you example, like in the case of
Speaker 1: India today, it's the banking system which is a complete mess.
Speaker 1: So you need you need to clean up of the
Speaker 1: banking system much more sort of private sector involvement in it,
Speaker 1: because the banking system is so dominated by public sector
Speaker 1: or government owned banks. So that's like a adea of
Speaker 1: reform as far is they need a little fatism there
Speaker 1: and spending a You can argue that in terms of it. Now,
Speaker 1: some of the countries, the reform requirement maybe something very
Speaker 1: different in terms of what needs to be done, like
Speaker 1: in the case of Indonesia, like there was a huge
Speaker 1: amount of a black economy, unaccounted economy. How to bring
Speaker 1: that back into the mainstream. Isn't that a common problem
Speaker 1: in in a lot of countries. Yeah, that's a common problem,
Speaker 1: but more so when some than the others. Right now,
Speaker 1: So I think that in terms of reforms is a
Speaker 1: catch all term, but for each country we have to
Speaker 1: be sort of careful about what exactly we mean by
Speaker 1: reform and what exactly can be done politically, because I'm
Speaker 1: not interested in sort of rattling off that X, y
Speaker 1: Z country needs to do ABC. I'm more interested in
Speaker 1: what is the political environment like in a country and
Speaker 1: what sort of reforms are likely to be passed and
Speaker 1: what that means for that countries economic growth, trade going forward.
Speaker 1: We've been speaking with Ruth Sheer Sharma. He is Morgan
Speaker 1: Stanley's head of Global Equities and the author, most recently
Speaker 1: of the rise and fall of nations. If you enjoy
Speaker 1: this conversation, be sure and stick around for our podcast extras.
Speaker 1: Will we keep the tape rolling and continue discussing all
Speaker 1: things emerging market. You can read my daily column on
Speaker 1: Bloomberg View dot com or follow me on Twitter at
Speaker 1: rid Holts. We love your emails and comments. Be sure
Speaker 1: to write to us at m IB podcast at Bloomberg
Speaker 1: dot net. I'm Barry rid Halts. You've been listening to
Speaker 1: Masters in Business on Bloomberg Radio, brought to you by
Speaker 1: Bank of America Merrill Lynch seeing what others have seen,
Speaker 1: but uncovering what others may not. Global Research that helps
Speaker 1: you harness disruption. Voted top global research firm five years running,
Speaker 1: Merrill Lynch, Pierce, Fenner and Smith Incorporated. Welcome to the podcast,
Speaker 1: Russ here. Thank you so much for doing this and
Speaker 1: being so generous with your time. I I find em
Speaker 1: to be a fascinating area and it's it's a pleasure
Speaker 1: to speak to an expert in It great to be here, Mary,
Speaker 1: thanks for having me. So we missed a bunch of
Speaker 1: questions um during the broadcast portion, and I there's a
Speaker 1: few I really want to jump into and you said
Speaker 1: a few things that I took some notes and wanted
Speaker 1: to follow up on. UM. You referenced e t f
Speaker 1: s and kind of just blindly buying as opposed to
Speaker 1: focusing on countries. I remember if you went back ten
Speaker 1: or twenty years and you wanted to invest in emerging markets,
Speaker 1: it was really hard to do. So there were a
Speaker 1: handful of managers who specialized in it. You had a
Speaker 1: lot of currency risk, the funds to do it was
Speaker 1: pretty expensive. It wasn't cheap, and of course everybody suffers
Speaker 1: from the home country bias, their wildly overexposed to where
Speaker 1: they live and under exposed to the rest of the world.
Speaker 1: But what is it about UM the recent changes in
Speaker 1: emerging markets that have allowed more and more people access
Speaker 1: to fast, easy and expensive ways to invest in the space. No,
Speaker 1: I think that in terms of that, this is a
Speaker 1: broad train that we're seeing across the world, which exactly
Speaker 1: which is, you know, a move towards passive away from
Speaker 1: active kind of investing. And my point is that in
Speaker 1: the emerging world especially, and I can argue that that's
Speaker 1: wrong and even in the developed world, but in the
Speaker 1: emerging world in particular, that's the wrong approaches because the
Speaker 1: differences are so sharp and the and the execution is
Speaker 1: also much more difficult, you know, like just to buy
Speaker 1: stuff which is passive. And then over time, emerging market
Speaker 1: fund managers do tend to outperform more than they developed
Speaker 1: market peers. So I think that why is that is
Speaker 1: that the first to growth rate is that the well
Speaker 1: because I think that possibly more inefficiencies that exploit the differences,
Speaker 1: the inefficiencies that you can exploit those much more in
Speaker 1: the emerging world. So I think that over time there
Speaker 1: is benefit towards UH investing actively in the emerging world.
Speaker 1: So so let's talk about an active investment in em
Speaker 1: If you look at the universe of possible frontier market
Speaker 1: and emerging market investments, what do you think are the
Speaker 1: most attractive countries today? And conversely, what are the least
Speaker 1: attractive countries? Yeah, I think that if you I mean,
Speaker 1: I uh, I think that it's easy to start with
Speaker 1: least attractive. I still find that China is the biggest
Speaker 1: risk in the emerging world. Yeah, because because of the
Speaker 1: kiss of debt that we spoke about all that. So
Speaker 1: there's a come up and its coming and it just
Speaker 1: hasn't it. Yeah, yeah, yeah, yeah, And even if it
Speaker 1: doesn't hit in a big crisis blow, it's like an
Speaker 1: insidious sort of uh trend, which is that it sort
Speaker 1: of eats away slowly at the growth rate over time.
Speaker 1: So I think China is so to let me out,
Speaker 1: let let me jump in here and and digress us
Speaker 1: to a related question. If China has a debt problem
Speaker 1: and and a huge economic slowdown caused by that, what
Speaker 1: does that mean for the rest of the world. I
Speaker 1: really look at China as more of a reflection of
Speaker 1: how the industrialized or or Western advanced economies are doing,
Speaker 1: because they're the manufacturing department for the rest of the world.
Speaker 1: But having said that, I think that there is a
Speaker 1: sort of big difference here, which is that dead levels
Speaker 1: and the rest of the world have stopped going up much, right,
Speaker 1: and if anything, they've begun to de leverage. And sometimes
Speaker 1: one of the questions we didn't one of the these
Speaker 1: we didn't get exact exactly. So some countries are de leveraging,
Speaker 1: including you know, countries such a Brazil and Russia possibly
Speaker 1: and even in the United States, the government debts going
Speaker 1: up on the private sector side, that dead levels of
Speaker 1: at least stabilize, you're not going up anymore, particularly household
Speaker 1: in the financial side. But in China's case, debt has
Speaker 1: been exploding like never before, like almost no country before it.
Speaker 1: So I think that it what's their total amount of
Speaker 1: debt and what's their debt to GDP depends how you calculated,
Speaker 1: but something between two dent as the share of the
Speaker 1: GDP China's debt today. That's huge, and there to the
Speaker 1: United States were barely similar. It's no, I mean, it's
Speaker 1: I'm talking about total debt. I'm talking about not so
Speaker 1: private exactly. So the US dead levels are almost similar
Speaker 1: to China. But the differences it's twofold here. One that
Speaker 1: the increase in China's debt has been much sharper than
Speaker 1: anything that the United States is. And to that typically
Speaker 1: the richer you are, the more debt you can afford
Speaker 1: because you have that much wealth to offset it. But
Speaker 1: in China's case, the dead levels are as high as
Speaker 1: the United States today as the share of its economy.
Speaker 1: Even the Chinese per capita income, it's wealth is a
Speaker 1: fraction of that of the United States. Yeah, so I
Speaker 1: think that the Chinese dead situation is very troubling to me,
Speaker 1: what what other countries do you think are potentially problematic
Speaker 1: from an investor's perspective. Well, I'm still concerned about Turkey
Speaker 1: because I think that in Turkey the interest rates in
Speaker 1: the U S. As they go up, they're very dependent
Speaker 1: on foreign capital. So Turkey is still some country that
Speaker 1: I'm I'm concerned about. I think that's South Africa, Africa.
Speaker 1: I think the African growth story in many parts is over.
Speaker 1: You know, something that we were all sort of looking
Speaker 1: to Africa rising now that are still pockets in Africa.
Speaker 1: So I wouldn't generalize about the entire continent, but many
Speaker 1: parts of Africa, from Nigeria to South Africa face a
Speaker 1: rather bleak growth future. So I think the very problematic
Speaker 1: the whole. Yes, I think then in a deglobalizing world,
Speaker 1: countries such as Korea, Taiwan, and even Hong Kong, Singapore,
Speaker 1: all these countries which relied much more on external demand
Speaker 1: to grow, I think that these countries are face much
Speaker 1: bleaker future than they did in the past. So that's
Speaker 1: the bleak side, the dark side of the of the world.
Speaker 1: On the positive side, I think that you know, in
Speaker 1: my book of course, I talked about both developed and
Speaker 1: Emerging Countries my new book. I think that in the
Speaker 1: emerging world, I think the Indian subcontinent looks okay. The
Speaker 1: growth prospects look decent. That Eastern Europe I think it's
Speaker 1: cleaned up its act a lot, Poland check Romania, those
Speaker 1: kind of countries. I think Latin America, as I mentioned,
Speaker 1: because of the politics, is getting better, whether it's Brazil,
Speaker 1: but more specifically Argentina, Peru, these kind of countries, the
Speaker 1: economic prospects are improving. And then the developed world two
Speaker 1: countries like the United States Germany, to me, they look fine. Now,
Speaker 1: you know, like we all here in the United States
Speaker 1: moan about all the problems that we have and our
Speaker 1: economic growth has been so low and this is the
Speaker 1: weakest economic recovery and post war history. All true, but
Speaker 1: on a relative basis, what we sort of have to
Speaker 1: account for is that the rest of the world faces
Speaker 1: even greater problems. So whenever there's any problem in the world,
Speaker 1: people are still fleeing to the U. S Dollar, right,
Speaker 1: So because this is still the reserve currency of the world.
Speaker 1: There's no other currency out there to challenge the US dollar,
Speaker 1: are I mean, it's facing all sorts of problems just now,
Speaker 1: and it's financial sector is quite rittle, So this is
Speaker 1: not a currency that's about to take over the world
Speaker 1: as the next reserve currency. So I'd say that. And
Speaker 1: Germany is still doing very well despite all the sort
Speaker 1: of problems in Europe, you know, Like it seems to
Speaker 1: me that a lot of the core European countries are
Speaker 1: becoming more uh sort of integrated rather than turning skeptical
Speaker 1: after the referendument places such as UK. So I would say,
Speaker 1: there are enough bright spots in the world. But what
Speaker 1: we have to do, and this is a very important
Speaker 1: concept that introduced in the book, is to lower the
Speaker 1: baseline for economic success, which is too in other words,
Speaker 1: to start looking for four or five percent. Two and
Speaker 1: a half percent growth is fine, yeah, And I'm saying
Speaker 1: that to like for the develop world, I'd say even
Speaker 1: they see nor the one and a half two percent
Speaker 1: is fine because we have an anchoring bias, as we
Speaker 1: call it, which that we look at what we were
Speaker 1: growing at the last twenty thirty years. And it's not
Speaker 1: going to say exactly and why right as a point
Speaker 1: out that it's because of demographics have changed. You just
Speaker 1: can't liver those economic growth rates anymore. The dead supercycle
Speaker 1: has ended in most countries. The massive increase in global
Speaker 1: debt we saw between night has come to a stall,
Speaker 1: barring maybe in odd China, but and they're facing problems
Speaker 1: because of that, but generally it's come to a stall.
Speaker 1: And then you have an head of the globalization which
Speaker 1: the nations are turning more inwards. So the productivity boost
Speaker 1: from globalization is behind us now. So I think that
Speaker 1: these are reasons why we should not expect to grow,
Speaker 1: and that fits in with long term history to understand
Speaker 1: that the period between nineteen fifty and two tho eight
Speaker 1: was a very exceptional period and that period is not
Speaker 1: coming back anytime soon. And once we accept that and
Speaker 1: lower the baseline for economic success, as you say that
Speaker 1: in the developed world, bring it down to one and
Speaker 1: a half two percent, in the emerging world, bring it down,
Speaker 1: you know, from whatever five plus for many poor countries,
Speaker 1: to bring that all down. So lower your growth expectations everywhere.
Speaker 1: Of course, the poorer you are, the faster your growth
Speaker 1: rate can potentially be. We'll try from a lower base,
Speaker 1: but lower growth expectations everywhere, and then that's the new
Speaker 1: math for economic success and you'll be able to identify
Speaker 1: winners more easily. So when you look around the world,
Speaker 1: let's let's talk a little bit about valuation. Where are there,
Speaker 1: um the countries that you think have the upside and
Speaker 1: prices don't quite reflect it yet. Where where are is
Speaker 1: their value out there? And and what's pricy? Yeah, I
Speaker 1: think that in terms of the fact is uh, that
Speaker 1: gets a bit more tricky because I think that clearly
Speaker 1: the US market is much pricier today. So even though
Speaker 1: the economic prospects look okay, because of the fact that
Speaker 1: you've had such a massive increase in asset prices here
Speaker 1: due to the faith easy money policies that here assets
Speaker 1: look very pricey to me in the United States, I
Speaker 1: think internationally the prices look somewhat better. Europe in particual
Speaker 1: more attractive. Yeah, Europe in particular looks more attractive, and
Speaker 1: I'd say some parts of the emerging world too look
Speaker 1: much more attractive. So so how do you balance, Well,
Speaker 1: Europe looks cheaper and emerging markets look cheaper. But Europe
Speaker 1: is a mess and it doesn't look like they're getting
Speaker 1: their act together anytime soon. But there are parts of
Speaker 1: so I spoke about Germany I spoke about, you know,
Speaker 1: some countries and it's Germany cheap because you look at
Speaker 1: at the southern countries that have had their problems, they
Speaker 1: look dirt cheap. It looks like everybody is afraid to
Speaker 1: put any money. Yeah, that's true, but I think that
Speaker 1: it's so um I agree, but I'm saying the cheapness
Speaker 1: cannot be the only criteria for investing. You know, cheapness
Speaker 1: is it's got to be cheapness and growth potential is exactly.
Speaker 1: So I think that. And you know, from a country perspective,
Speaker 1: I find that if you get the growth rates correct,
Speaker 1: then you're able to sort of do well in those countries.
Speaker 1: Valuations take care of themselves exactly, so I'd say that,
Speaker 1: so I wouldn't get too hung up on valuations. But generally,
Speaker 1: because of the massive asset price inflation we've seen in
Speaker 1: the world of the last few years led by the
Speaker 1: United States and the easy policy of the faith, cheap
Speaker 1: today is really a heart thing to find in the world.
Speaker 1: So so we mentioned during the broadcast portion the first
Speaker 1: two these the population and the global it's Asian. Let's
Speaker 1: talk a little bit about the other two. And you
Speaker 1: just referenced de leveraging. So what what is this The
Speaker 1: impact of de leveraging on the global economent well, I
Speaker 1: think it makes it more stable over time, but also
Speaker 1: the fact that it sort of puts a downward pressure
Speaker 1: on economic growth, which is that between two and eight
Speaker 1: we've got a massive increase in global data as a
Speaker 1: share of the economy, and that that made the economy
Speaker 1: boom exactly like eventually, uh, you had a bust also
Speaker 1: at the end of So I think it's very difficult
Speaker 1: now to get those kind of massive increases in in
Speaker 1: global dead because that also was a one off because
Speaker 1: global inflation was falling and global interest rates declined a
Speaker 1: lot in that period. And I think that those trains
Speaker 1: of bottoming out now. So I don't see dead levels
Speaker 1: going up across the world much in the next few years.
Speaker 1: And then we have the entire prospect of the fourth
Speaker 1: day I speak about, which is demotization. Before we get
Speaker 1: to the fourth day, I have to ask you, so
Speaker 1: Reinhardt wrote off did their eight hundred years of financial
Speaker 1: folly and their perspective of is following a financial crisis
Speaker 1: because of the leveraging, you have a tendency to get
Speaker 1: this very subpar growth rate for a decade or so
Speaker 1: and then things begin to revert back to normal. Are
Speaker 1: you in the Rhinehart and Rod Gralf camp or do
Speaker 1: you think that I think that, you know, the uh,
Speaker 1: their analysis is like not that valid anymore, because now
Speaker 1: we're in the eighth year after the global financial crisis,
Speaker 1: and I think that the reason why the global economy
Speaker 1: is weak today has to do a lot with the
Speaker 1: fact that the demographics have changed that they mentioned. But
Speaker 1: so I don't think that that what happened in two
Speaker 1: thousand eight in terms of debt is that relevant today.
Speaker 1: But what is the elevent is that that levels of
Speaker 1: debt aren't going up that much anymore to turbo charge
Speaker 1: growth the way the growth was turbo charged between two eight.
Speaker 1: So there's a subtle difference here, But the secular change,
Speaker 1: it's that's not it's not that subtle. That's a major change.
Speaker 1: If you're not expanding the debt and contracting it, obviously
Speaker 1: there's a big impact of that. So now let's go
Speaker 1: to the fourth D, the D democratization. UM, we had
Speaker 1: the Brexit vote, we had the Trump victory. What is
Speaker 1: D democratization? Well, I think that you know, UM for
Speaker 1: much of recent history, we saw an increase in the
Speaker 1: number of democracies in the world, right, So we saw
Speaker 1: this in the nineteen eighties nine nineties, that the number
Speaker 1: of democracies in the world were expanding. But now what
Speaker 1: we're seeing is that that is no longer the case.
Speaker 1: In fact, the number of authoritarian regimes is increasing in
Speaker 1: the world today, with even some countries which were on
Speaker 1: the paths through democracy like Russia and Turkey, etcetera, turning
Speaker 1: much more authoritarian now. So that's what I mean by
Speaker 1: de democratization and what does that mean for the global economy.
Speaker 1: What it means is much more volatility because what I
Speaker 1: find our authority and regimes is that the policy becomes
Speaker 1: much more unpredictable. So policy is good, you can get
Speaker 1: very good economic growth rates. Where policy turns bad, they're
Speaker 1: not ect and balances in place, and you can get
Speaker 1: very bad outcomes as well. So much more volatility and
Speaker 1: global economic growth due to d democratization. That's what I
Speaker 1: think is going on, that the world is turning less
Speaker 1: democratic after a massive increase in democracy in the nineties,
Speaker 1: nineties and much of last decade, and an increase in
Speaker 1: authority and figures across the world from pute into eard
Speaker 1: one on the rise. So so how do you when
Speaker 1: when you're looking at different countries and you're looking at
Speaker 1: different regions of the world, how do you model geopolitical risk.
Speaker 1: It's very difficult to model, but just to keep that
Speaker 1: in mind, which is the fact that you know, for example,
Speaker 1: people speak to me about that, what is something happened
Speaker 1: to the South China Sea with China aggressive for Japan.
Speaker 1: That's the kind of stuff which is extremely difficult to model, right,
Speaker 1: but you can keep the impossible impossible, but at least
Speaker 1: keep in mind that the potential for conflict is going
Speaker 1: up across the world just today now because the United
Speaker 1: States is in retreat right, which provided this big purity
Speaker 1: umbrella for many countries, and defense spending is going up.
Speaker 1: One of the big trains I think which we're seeing
Speaker 1: in the marketplace, and something which I believe in is
Speaker 1: that defense spending is bound to go up. The peace
Speaker 1: dividend is over. Like we had this piece dividend where
Speaker 1: you had one country which was sort of you know,
Speaker 1: benefiting UH or other providing a benefit to many countries
Speaker 1: as at loan superpower. I think those days are done now.
Speaker 1: So now let's talk about that. The United States provides UM.
Speaker 1: We have we have treaties with Japan, we have treaties
Speaker 1: with NATO. We prove work with South Korea to protect
Speaker 1: against North Korea. We work with Japan against the rest
Speaker 1: of Asia. All along um, Western Europe. We promised to
Speaker 1: provide a bulwark against Russia and what used to be
Speaker 1: communist Eastern Europe. Are you suggesting that that's going to
Speaker 1: go away in the United States? Are gonna there? So?
Speaker 1: It seems so. I mean, you know, that's what the
Speaker 1: Trump presidency is partly about. Again, we don't know the
Speaker 1: details of the Trump presidency. We don't know in a
Speaker 1: how exactly is going to govern, but it seems that's
Speaker 1: the trend, and some countries are already acting as if
Speaker 1: that's the trend. Really, yeah, because defense spending in many
Speaker 1: parts of the world is going up. If you look
Speaker 1: at it now, right, and whether it's a South where, where,
Speaker 1: where do you see defense spending going Well? I think
Speaker 1: that like you see it in parts of Asia, parts
Speaker 1: of the Middle East, like you see defense spending is
Speaker 1: now is not going up over the last few years.
Speaker 1: That's interesting because the number of conflicts has been going
Speaker 1: down steadily for decades. Yes, I wonder if that's gonna
Speaker 1: Do you see that changing is? Yeah, because I think
Speaker 1: that if you again look back at history and you
Speaker 1: look at what deglobalization brings it, when nations tend to
Speaker 1: trade less with each other, the potential for conflict does
Speaker 1: go up. Nations turn more inwards. So I do feel
Speaker 1: that now this is stuff which is very hard to model,
Speaker 1: but it's a risk worth keeping in mind that that's
Speaker 1: the trend. So what do you think is the net
Speaker 1: under the radar country to to sort of burst out,
Speaker 1: to become a breakout nation. Well, I think, you know,
Speaker 1: like in terms of in today's era, it's much more difficult.
Speaker 1: But if you ask me, you know one question that
Speaker 1: a lot of people ask me, and it's somewhat related
Speaker 1: to yours, that which region do I think which emerging
Speaker 1: region do I think could graduate to becoming a developed region?
Speaker 1: Very high heart transition to me, right, because today that
Speaker 1: about what was the last country that actually made that transition?
Speaker 1: Well you can argue that something like greased it for
Speaker 1: a while then fell back. You can argue countries like
Speaker 1: Israel have have done that. Countries like Korea Taiwan or
Speaker 1: on the border. Uh, those last three certainly are are
Speaker 1: are fairly incredible example exactly. So I think that those
Speaker 1: are If you ask me the next batch, I would say,
Speaker 1: it's possibly the Eastern European countries really yeah, because check
Speaker 1: is also Romanias much further behind, but you know, Slovakia.
Speaker 1: So so I think that these are the countries which
Speaker 1: have the best potential for making it to the next level.
Speaker 1: So why what what makes those countries so special and
Speaker 1: closer to being a developed country than than their peers
Speaker 1: and neighbors. Yeah, I think that one is in terms
Speaker 1: of that like the kind of economic policies they follow,
Speaker 1: which is that much more investment friendly, and because they're
Speaker 1: close to Europe on how to get integrated with Europe,
Speaker 1: so they have an aspiration to catch up with Europe.
Speaker 1: So in terms of you know, the convergence aspiration, and
Speaker 1: also the fact that I find that they've focused a
Speaker 1: lot on getting their institutions correct, which is that you know,
Speaker 1: of very important of getting the same sort of metrics
Speaker 1: like central bank independence, of of having very strict inflation targets,
Speaker 1: of not doing uh too much ah excessive government spending,
Speaker 1: m keeping the deficits under control. So there's basic economic
Speaker 1: orthodoxy that these countries are following and not doing all
Speaker 1: the bad things also, which is that they've kept the
Speaker 1: currencies to be fairly compared ditive, not joined the Euro fully.
Speaker 1: So they're sort of in that sweet spot, which that
Speaker 1: they're not part of the Euro currency area, but they're
Speaker 1: part of the EU area, so they benefit from the
Speaker 1: trade linkages but don't get locked into having a currency
Speaker 1: that becomes uncompetitive and leads to all the problems that
Speaker 1: we saw in Southern Europe by adopting a common currency.
Speaker 1: You know, we have a friend who is an art
Speaker 1: director at Pepsi and and does a lot of their
Speaker 1: their designed for various soda cans and packaging, and and
Speaker 1: i was looking at some of her portfolios and I'm like, oh,
Speaker 1: this is really interesting, and she goes this this and
Speaker 1: this Slovakia, this this, and this Eastern Europe. What do
Speaker 1: you mean. Oh, they have great designers and computer people,
Speaker 1: and they work for a tenth of what Americans do,
Speaker 1: and the booming, booming industry there, so very competitive in
Speaker 1: terms of the exchange rate and their workforce. The labor
Speaker 1: costs are relatively low, so I think that these are
Speaker 1: all good factors for these countries. Quite quite fascinating. My
Speaker 1: last question before I get to my standard questions you
Speaker 1: reference in I think it was the earlier book the
Speaker 1: role of Billionaires in a country. So what do the
Speaker 1: number of billionaires mean to a country that's development? It's
Speaker 1: then my current book. You know, one of my rules
Speaker 1: of the ten rules I speak about in So let's
Speaker 1: let's go over those ten rules then, because I wanted
Speaker 1: to get to that, and I'll hopefully we won't run
Speaker 1: too late, but quickly. Let's let's let's review the ten rules. Right. So,
Speaker 1: my first rule has to do with demographics, that people matter,
Speaker 1: which we talked about the second rule of the circle
Speaker 1: of life. That's how how politics matters. That countries which
Speaker 1: elect new leaders and typically have their back to the
Speaker 1: wall are the best sort of conditions for economic reforms
Speaker 1: to take place in those countries. My third rule has
Speaker 1: to do with the involvement of the state, which is
Speaker 1: that typically if you have a very large, intrusive eight
Speaker 1: that chokes economic growth. Yeah, so like you need the
Speaker 1: state to be sort of efficient and right sized. Uh.
Speaker 1: Then I speak about the good and bad billionaires. The
Speaker 1: fourth rule and this is a new introduction for me
Speaker 1: because a decade ago I would not have had this rule.
Speaker 1: Why have I introduced this rule because income in equality
Speaker 1: has become such a big factor across the world. That's
Speaker 1: a question and then gets and I'm glad you're bringing
Speaker 1: So in terms of income, in equality is factor. And
Speaker 1: we know that if a country becomes too unequal, that
Speaker 1: leads to problems for economic growth in that country. So
Speaker 1: the Good and Bad Billionaires is a very live way
Speaker 1: of gauging whether inequality in a country has become too
Speaker 1: much of a factor and possibly goes against that country's
Speaker 1: cultural wealth creation. So you look at the number of
Speaker 1: good and bad billionaires. If you have too many billionaires
Speaker 1: in a country, or you have if you have too
Speaker 1: many billionaires coming from industries perceived as being corrupt, which
Speaker 1: is real estate, mining, oil and gas, or if you
Speaker 1: have too many billionaires who simply inherit their wealth rather
Speaker 1: than make it on their own. Those are conditions which
Speaker 1: typically lead the population of a country to be against
Speaker 1: the process of well creation. The flip side, and you
Speaker 1: know this is where the United States is still okay.
Speaker 1: If you have lots of billionaires coming from innovative industrieslogy, manufacturing, pharmaceuticals.
Speaker 1: Those people are respected answers financing well, finance I think
Speaker 1: is a border line little I'd say that I'm not surprised. Yeah,
Speaker 1: if you have too many billionaires coming from finance, I
Speaker 1: don't think that's a good ning for a country. And uh,
Speaker 1: if a lot of the world is mainly inherited, like
Speaker 1: tends to be the case in place like Korea and
Speaker 1: other places, that's also not good for a country. But
Speaker 1: the place where the United States looks a bit weak
Speaker 1: because the number of billionaires as a share of the
Speaker 1: economy is very very large out here, So you ends
Speaker 1: up with a lot of income inequality exactly. But if
Speaker 1: you take all these things together, So that's the first five,
Speaker 1: give me the back five. Right, So in terms of
Speaker 1: then I talked about geography, right, in terms of that
Speaker 1: sweet spot and trade spots that we spoke about. Then
Speaker 1: I speak about uhctories first, Yeah, that that typically countries
Speaker 1: which are strong and manufacturing and investment don do much
Speaker 1: better than countries which are strong and commodities and consumption.
Speaker 1: We certainly have seen that all around the world. Last, yes,
Speaker 1: you know, like you've seen that these commodity ridented economies
Speaker 1: boom and bust very frequently. People have been calling it
Speaker 1: the curse of oil or the curse of commodities. So
Speaker 1: we've seen that overtime, countries which tend to focus more
Speaker 1: on manufacturing exports too much better than countries which export commodities.
Speaker 1: Then I speak about currency, that your exchange rate needs
Speaker 1: to be very competitive to be able to grow that
Speaker 1: if we have a very overvalued currency and and you
Speaker 1: have like that's not a good thing. Then I speak
Speaker 1: about inflation on how low inflation is the bedrock for
Speaker 1: financial stability, but we also need to sort of focus
Speaker 1: much more on asset price inflation as well. Looking at
Speaker 1: just consumer price inflation is not enough. We need to
Speaker 1: broaden the scope. That you know, if you get housing
Speaker 1: booms financed by debt, that's a real problem. My favorite rule,
Speaker 1: as I said, is the Kiss of debt, because the
Speaker 1: academic work that I've done on it has the maximum
Speaker 1: backing and very powerful. And the last rule is is
Speaker 1: maybe a bit of music, but really important is the
Speaker 1: contrarian rule, which is that if a country begins to
Speaker 1: appear on the cover stories of a magazine too often
Speaker 1: in a positive way that is usually not good for
Speaker 1: that country, because it tells you that the trend is
Speaker 1: maturing and that the leaders of the other country getting
Speaker 1: too complacent. You call it the hype watch. The hype
Speaker 1: watch because, as I said, I began my career as
Speaker 1: a writer and a term I often heard about with
Speaker 1: the curse of the cover story, right, which that's something
Speaker 1: that makes it to the cover of a of a
Speaker 1: popular magazine, that trend tends to come to an end,
Speaker 1: is what journalists speak about. But I've done work here
Speaker 1: to back that up. And what my work very briefly
Speaker 1: shows is that if a country makes it to the
Speaker 1: cover of Time magazine in a positive way, and two
Speaker 1: thirds of that time, that country does poorly in the
Speaker 1: next five years. On the other hand, of a country
Speaker 1: makes the cover of Time magazine in a negative way,
Speaker 1: then two thirds of that time that the time that
Speaker 1: country does well in the next five years. Because, as
Speaker 1: it goes back to my original rule of the circle
Speaker 1: of life, that countries typically reform only when they have
Speaker 1: their back to the wall, and countries get complacent once
Speaker 1: they're already booming, and magazine editors feel embolding to put
Speaker 1: a country on the cover in a positive way. Once
Speaker 1: a boom is a parent. The old joke is once
Speaker 1: uh it makes it to the editorial staff of Time magazine,
Speaker 1: who's left to come in and buy that? That's the
Speaker 1: end of So those ten are fascinating In the last
Speaker 1: uh ten twelve minutes I have you. Let's let's go
Speaker 1: through um my standard questions uh to learn a little
Speaker 1: more about you if we can. Um let's talk about
Speaker 1: some of your We discussed your background. Let's talk about
Speaker 1: your early mentors. Who who is influential in in helping
Speaker 1: your career along? Well, I think that you know that
Speaker 1: I mean like in terms of like a combination of
Speaker 1: people out there. The firm that I uh that I
Speaker 1: joined at at Morgan Standy for example twenty years ago,
Speaker 1: where led by a very interesting character called Barton Biggs,
Speaker 1: so like so like he he really sort of uh
Speaker 1: showed me this combination of investing in writing could be
Speaker 1: such fun. So he's definitely someone I think that who
Speaker 1: was in like an inspiration for many people out here.
Speaker 1: But you know, from an investment standpoint, I'd say that,
Speaker 1: well that I was very fortunate that when that the
Speaker 1: person I first worked with back in Asia with somebody
Speaker 1: who showed me that you really need a very good
Speaker 1: temperament for investing. And I think that's something which we
Speaker 1: all tend to possibly underestimate. Temperament for investing, which is
Speaker 1: there some more details on what do you mean by that? Yeah,
Speaker 1: because I think that so many people. I mean, one
Speaker 1: of the big problems we have in our industry is
Speaker 1: people sort of you know, like too wedded to their
Speaker 1: screens and two weady to daily price movements and often
Speaker 1: chasing their tail and um, often with very little ability
Speaker 1: to withstand pain in the short term, and and being
Speaker 1: too momentum driven. Right. So I think that what one
Speaker 1: of my first UH people that I worked with really
Speaker 1: taught me was that how do you have a good
Speaker 1: temperament for investing? How can you take the long view
Speaker 1: and and have the patience to sit through uh the
Speaker 1: uh like the long view. So I think that temperament
Speaker 1: for investing is something is very important. That's interesting. Let's
Speaker 1: talk about investors who and this keeps buzzing and I
Speaker 1: keep shutting it off and I can't get it to stop.
Speaker 1: That's that's what I've been doing here. Um, what investors
Speaker 1: have influenced your approach to investing? Who's affected the way
Speaker 1: you think about putting money to work in emerging markets.
Speaker 1: But as I said that I learned you know that,
Speaker 1: you know, the people that I initially worked with, including
Speaker 1: Barton and some of his colleagues, you know, like obviously
Speaker 1: had a big influence on that. Uh. But I also
Speaker 1: feel that, like like some of the macro style of investing,
Speaker 1: you know, like the people that I have, you know
Speaker 1: that we all grew up admiring with the likes of
Speaker 1: the job sorry is Julian Robertson's of the world, and
Speaker 1: I was fortunate to interact with some of them at
Speaker 1: a very early stage of my career. So I'd say
Speaker 1: that those type of people who you know, the classic
Speaker 1: big edge fund investors of the nine nineties, uh, look
Speaker 1: like such as these characters, I'd say, you know, we're
Speaker 1: very influential in the way that I think that I've
Speaker 1: grown up. So you've written two books, You've published everywhere
Speaker 1: from the wall, strettourn over the f T, you know,
Speaker 1: all around. Let's talk about who you read? What what
Speaker 1: books have you enjoyed, be them be they fiction or nonfiction,
Speaker 1: market related or not. Well, I tend to read a
Speaker 1: lot of biographies, because I really sort of find those fascinating,
Speaker 1: especially which you know, take me back into a different
Speaker 1: period of history. Give us a few. For example, this
Speaker 1: year I read, you know, like John Mitchum's book on
Speaker 1: George Bush, the first right, which is George H. W. Bush.
Speaker 1: I found that a very interesting book in terms of
Speaker 1: it's a fascinating tale of how some one can win
Speaker 1: a war and lose an election and sort of you know,
Speaker 1: to take us into the mind and it's such a
Speaker 1: different error. Also that you a total a totally different
Speaker 1: Republican from a different era. Complain what we see too
Speaker 1: is different. Everything, everything is different. So I think that
Speaker 1: was a fascinating book to read. I mean, then I
Speaker 1: think Charles More's biography on Margaret Thatcher, Andrew Roberts book
Speaker 1: on Napoleon. These are like some of the biographies that
Speaker 1: I've really enjoyed reading in recent in like recent times.
Speaker 1: Um that In terms of investing, I think that, I mean,
Speaker 1: I like books which you know, like tell me more
Speaker 1: about investing behaviors. I think that someone like Nicholas Talib
Speaker 1: has written some good books on that randomness. And then yeah,
Speaker 1: like the concept of antifragile was very strong even though
Speaker 1: that book itself didn't do that well. But the concept
Speaker 1: of anti fragile I thought was it was like a
Speaker 1: very strong concept that if you're able to sort of
Speaker 1: you know, like the old sort of notion about which
Speaker 1: is sort of showed so well, if you're able to
Speaker 1: sort of you know, uh, if something can't break you,
Speaker 1: it makes you stronger. So I think that those are
Speaker 1: the kind of books which I which I like to
Speaker 1: read over time. But I'd say that the biographies in
Speaker 1: particular is my weakness. Um, I'm on my list is
Speaker 1: The Right Brothers by McColl. Everybody I know who's read
Speaker 1: it just raves about it. I haven't gotten to it yet,
Speaker 1: but I think that's gonna be my next next holiday.
Speaker 1: Um read right, Yeah, absolutely, any other you ever read fiction?
Speaker 1: Anything else? Unfortunately I don't read fiction. But I'm a
Speaker 1: huge movie fan. And yeah, and I find I particularly
Speaker 1: like watching international cinema. Uh. And I find that watching
Speaker 1: international cinema is a great way of learning about the
Speaker 1: social fabric of another country that's very interesting, whether it's European, Iranian,
Speaker 1: but there's some great international cinema. And I find that
Speaker 1: that so like. I don't think ever the week goes
Speaker 1: by when I don't watch one or two international movies. Really,
Speaker 1: so this is a quite fascinating coincidence. Your podcast episode
Speaker 1: follows first Lawrence Levy, who was the CFO of Pixel Right,
Speaker 1: and then David Tuckman who um took channels like MTV
Speaker 1: and Nickelodeon and am A, m C and h MGM
Speaker 1: and turned them into international brands. And he literally took
Speaker 1: all these various US properties and turned them into you know,
Speaker 1: I think those channels are now in a hundred and
Speaker 1: forty countries. Um. Yeah, No, it's really just an unusual,
Speaker 1: interesting coincidence. How do you find these international films to watch?
Speaker 1: Is it Netflix or no? I mean, like I like
Speaker 1: doing it the old classical way, which is of going
Speaker 1: into a theater, locking yourself in, you know, for two hours,
Speaker 1: without without any access to technology, and like seeing it
Speaker 1: and the other passion. And you can do that in
Speaker 1: New York. There's plenty of into national you know, like
Speaker 1: in fact exactly so. And also like some of the
Speaker 1: film festivals, like I've watched I was the New York
Speaker 1: Film Festival in October. I think I watched a dozen
Speaker 1: movies playing at Lincoln Center at one of the most
Speaker 1: you know, spectacular places to watch a movie, the Alice
Speaker 1: Tully Hall I find. I mean, I just love sitting
Speaker 1: in or the water read theater, so, um, I really
Speaker 1: like doing that, and going to film festivals. I think
Speaker 1: it's a great way of of doing that. So, like
Speaker 1: I mean to tell you right earlier this year, I've
Speaker 1: been to Venice, Can I've been to these so I think,
Speaker 1: you know, like I find it fascinated with film festivals.
Speaker 1: And in in New York, of course you have two
Speaker 1: film festivals which are great. The New York Film Festival
Speaker 1: I think is like absolutely brilliant, and then at a
Speaker 1: smaller level we have the Tribeca in April. Yeah, so
Speaker 1: I'd think that watching going to film festivals, watching some
Speaker 1: international cinema, learning about the social fabric of another country
Speaker 1: through that. And of course European cinema is just lifestyle voyeurism, right,
Speaker 1: I mean you could just watch any europe Insured and
Speaker 1: the setting is so spectacular, and you know, like the
Speaker 1: mannerisms are as such which as you know, where you know,
Speaker 1: which are captured so well on camera that it's a
Speaker 1: great fund to what such movies that's really really interesting. Um.
Speaker 1: So in the last few minutes I have you for
Speaker 1: let me ask you what has changed about the emerging markets, Um,
Speaker 1: since you began following them, you know, twenty years ago. Well,
Speaker 1: they become much more sort of structured now. I mean
Speaker 1: when I started twenty years ago, it was a bit
Speaker 1: of a cowboy land, which more frontier than imagining exactly,
Speaker 1: you know, like the rules weren't entirely cleared. How you
Speaker 1: got research was much more unstructured, and uh, you know,
Speaker 1: like and then you had all sorts of corporate governance
Speaker 1: issues in these markets. So I think it's that's become
Speaker 1: a lot better now over time, and the integration is
Speaker 1: much more real now. So I'd say that there's been
Speaker 1: a big improvement in terms of as far as emerging
Speaker 1: markets are concerned. But I still find traveling is very useful.
Speaker 1: But the big change, I'd say is the fact that
Speaker 1: it's a lot more structured now compared to the cowboy
Speaker 1: days of twenty five years ago when if I started
Speaker 1: looking at these countries and actually you answered my, uh
Speaker 1: the question I was gonna ask you, what do you
Speaker 1: do to relax outside of the office biographies and film festivals. Um,
Speaker 1: let's jump to the last two questions. So you have
Speaker 1: to work with a lot of people right out of school,
Speaker 1: young people at Morgan Stanley. What sort of advice do
Speaker 1: you give to millennials or someone at the start of
Speaker 1: their career who say, Hey, I'm interested in emerging market uh, investing? Um,
Speaker 1: you know, like I'm a bit st if. I find
Speaker 1: it a bit presumptuous to give advice to people, because
Speaker 1: I find that each one to their own. I mean
Speaker 1: I never followed anyone's advice while growing up, to be
Speaker 1: honest with you, because I was at a very young age,
Speaker 1: I got very interested in writing and investing and just
Speaker 1: followed my passion. And sometimes at work sometimes that doesn't work.
Speaker 1: And uh, I was about to come here in the
Speaker 1: U s to do my PhD. And someone from Morgan
Speaker 1: Stanley who liked my work while hiring me, basically told
Speaker 1: me that you want to study or do you want
Speaker 1: to make money? I want to make money And I
Speaker 1: didn't study more, and I think I learned more by
Speaker 1: sort of working real time. But it works for some,
Speaker 1: it doesn't work for the others. So I feel it
Speaker 1: presumptuous to give advice. But I think very important to
Speaker 1: know that there is no one size fits all formula.
Speaker 1: There is no manthra of a success that you've got
Speaker 1: to do this and that will happen. But but you've
Speaker 1: got to find out who you are and sort of
Speaker 1: follow that passion. And and for me, my entire sort
Speaker 1: of thing is that you've got to sort of Um,
Speaker 1: there's a line that someone told me very early on
Speaker 1: which I followed to, which is that live life in
Speaker 1: parallel and not in series. You know, which is that,
Speaker 1: like so many people at a young age left to plan,
Speaker 1: I'll do this five years from now, I'll put the
Speaker 1: soft ten years from now. Hey, if you can do
Speaker 1: it today, do it right. Who knows what's gonna happen
Speaker 1: for you. Yeah, so i'd say that, like, at least
Speaker 1: for happiness, that's important. Now. Whether that's a success formula,
Speaker 1: I don't know, but I think it makes you happier
Speaker 1: to live life in parallel it in series. Well, Well,
Speaker 1: that's very humble of you to say. Who am I
Speaker 1: to say? You have achieved a certain degree of professional success,
Speaker 1: which I think certainly is why someone might be asking
Speaker 1: you for advice. But I like your answer. I think
Speaker 1: that's a very interesting answer. And our final question, Um,
Speaker 1: what is it that you know about emerging markets today
Speaker 1: that you wish you knew twenty years ago? As I
Speaker 1: said that emerging markets have really evolved a lot over
Speaker 1: over time. But what I'm really happy with is that
Speaker 1: at least have come up with now a structure of
Speaker 1: thinking about them, these pain rules, right, I mean, like
Speaker 1: because like often what happened when we speak about countries.
Speaker 1: It's not just true of emerging but even though of
Speaker 1: the U S or other developed countries, is that we
Speaker 1: have these unstructured water cooler type conversations, or this country
Speaker 1: looks good because of this, this country looks bad because
Speaker 1: I don't like that leader or something like that. I
Speaker 1: think what I'm really happy about is that at least
Speaker 1: I've been able to come up with Okay, these are
Speaker 1: the ten things you should really look at, and this
Speaker 1: is how you should look so money ball for emerging markets,
Speaker 1: the way of quantifying what's going on instead of the
Speaker 1: old myths and heuristics. Yeah, but I'm saying yeah, and
Speaker 1: like also of eliminating as to what does not matter,
Speaker 1: Like you know all these myths that education really matters
Speaker 1: for economic growth. Yeah, but the evidence is very mixed
Speaker 1: that the time it takes for education to move. The
Speaker 1: needle for ecnomic growth is much longer than you and
Speaker 1: I can sort of be here for it's better than not.
Speaker 1: But you're not gonna wait twenty years, thirty years to
Speaker 1: have to hang my hat on that. And it's a
Speaker 1: chicken g story as to which one comes first, is
Speaker 1: it good education or is it economic success, which then
Speaker 1: leads to the funding education. I mean for good education.
Speaker 1: So I'd say that that is what I'd say that
Speaker 1: I wish i'd known back then, I think, But but
Speaker 1: that's the process of evolution, which that you just learned
Speaker 1: these things over time. But the fact that we at
Speaker 1: least have ten things, and I'm very pleased to share
Speaker 1: that with the rest of the world so that I
Speaker 1: can have this debate about how to improve the system
Speaker 1: is what I feel good about. So if people want
Speaker 1: to find your work, where's the best place for them
Speaker 1: to look for you? We we can at least mention
Speaker 1: the two books break Out Nation and Rise and Full
Speaker 1: of Nations. I assume most of the writing you do
Speaker 1: at Morgan Stanley is behind a research firewall. Is that correct?
Speaker 1: I mean, like I'm on the investing site, so I'm
Speaker 1: on the investment management site. So I don't write research
Speaker 1: for external good but what I do write our op
Speaker 1: eds very frequently, so Wall Street Journal ft FT, New
Speaker 1: York Times UH and foreign affairs are typically couldn't get
Speaker 1: into any good publication. But you're slumming it. So i'd
Speaker 1: say that you know like that unfortunately to write for
Speaker 1: these uh publications. Okay, so you're very so between Google
Speaker 1: and Amazon, you're very findable, I think so, Rushier, thank
Speaker 1: you for being so generous with your time. We have
Speaker 1: been speaking with Morgan Stanley's Rushier Sharma. UH. If you
Speaker 1: enjoy this conversation, be sure and look up an inch
Speaker 1: or down an inch on Apple iTunes and you could
Speaker 1: see the other hundred and twelve or so uh such
Speaker 1: conversations that we have had in the past. I would
Speaker 1: be remiss if I did not thank Uh. Taylor Riggs
Speaker 1: are ahead of UM. I'm gonna do that again. Let
Speaker 1: me let me see if I can get Taylor's name correctly.
Speaker 1: I would be remiss if I did not thank Taylor Riggs,
Speaker 1: who is our book or extraordinaire and and chases down
Speaker 1: these folks UH for me in order to bring them
Speaker 1: here into the studio and share their thoughts with you.
Speaker 1: And Michael Batnick, our head of research, who helps me
Speaker 1: prepare all these insightful, thoughtful questions. Uh. We love your
Speaker 1: comments and feedbacks and we have a specific feedbacks. What's feedbacks?
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