WEBVTT - Interview With Ruchir Sharma: Masters in Business (Audio) 0:00:00.160 --> 0:00:03.279 Brought to you by Bank of America. Merrill Lynch, committed 0:00:03.279 --> 0:00:06.320 to bringing higher finance to lower carbon named the most 0:00:06.360 --> 0:00:10.280 innovative investment bank for climate change and sustainability by the Banker. 0:00:10.680 --> 0:00:13.960 That's the power of global connections. Bank of America, North 0:00:14.000 --> 0:00:20.239 America Remember f D I C. This is Masters in 0:00:20.320 --> 0:00:24.520 Business with Barry Ridholds on Bloomberg Radio. This week on 0:00:24.560 --> 0:00:30.280 the podcast, we have Morgan Stanley's global equity strategist, Rusher Sharma. 0:00:30.360 --> 0:00:34.240 He is also the head of Emerging Markets for Morgan Stanley. 0:00:34.720 --> 0:00:38.040 A person who may not be well known to the 0:00:38.159 --> 0:00:42.519 investing public, but is very influential on Wall Street. Frequently 0:00:42.560 --> 0:00:46.280 writes for for for outlets like The New York Times, 0:00:46.280 --> 0:00:50.120 The Wall Street Journal, UH, the FT, describing what's happening 0:00:50.760 --> 0:00:54.200 UH in the world and in the global economy. His 0:00:54.400 --> 0:00:57.920 most recent book is called The Rise and Fall of Nations. 0:00:57.960 --> 0:01:02.960 His previous book was on Breakout Nations and if you 0:01:03.000 --> 0:01:08.560 are at all interested investing overseas, he has some very 0:01:08.680 --> 0:01:12.720 very specific ideas about what you should and shouldn't do. 0:01:13.319 --> 0:01:17.319 And I don't mean by Brazil, sell Russia or anything 0:01:17.360 --> 0:01:21.200 like that. It's really his process that's so good. He 0:01:21.680 --> 0:01:24.920 the most recent book, The Rising Full Nations. It's a 0:01:25.040 --> 0:01:28.280 ten point treatise on these are the ten steps you 0:01:28.319 --> 0:01:33.440 should make before reaching a decision about buying or selling 0:01:33.480 --> 0:01:37.840 any particular region in the world. UH. He's very rigorous 0:01:37.840 --> 0:01:42.199 and analytical, and his thought process is different than from 0:01:42.240 --> 0:01:46.120 from what all too many people I think UH do 0:01:46.240 --> 0:01:48.840 when they approach emerging markets. I found it to be 0:01:48.880 --> 0:01:52.240 a fascinating conversation and I think you will as well. 0:01:52.440 --> 0:01:59.120 With no further ado, my conversation with Rucier Sharma. This 0:01:59.320 --> 0:02:03.240 is Master's in Business with Barry Ridholts on Bloomberg Radio. 0:02:03.680 --> 0:02:07.880 My special guest today is Ruscier Sharma. He is Morgan 0:02:08.000 --> 0:02:12.520 Stanley's chief Global strategist and head of Emerging Markets. He 0:02:12.600 --> 0:02:16.680 has quite the fascinating background. UH. He manages about twenty 0:02:16.680 --> 0:02:20.160 billion dollars with a team of twenty five people. He 0:02:20.280 --> 0:02:23.800 is a frequent contributor to The Wall Street Journal, Financial Times, 0:02:23.840 --> 0:02:28.400 Foreign Affairs. Raised in Delhi, the son of a military officer, 0:02:28.720 --> 0:02:32.080 and had written for India's largest financial daily, UH, the 0:02:32.120 --> 0:02:35.880 Economic Times since the age of seventeen. Rusher is also 0:02:35.960 --> 0:02:40.120 the author of several books, including Breakout Nations, a two 0:02:40.120 --> 0:02:43.440 thousand and twelve best seller, and more recently The Rise 0:02:43.480 --> 0:02:46.640 and Full of Nations, uh New York Times bestseller that 0:02:46.720 --> 0:02:50.280 just came out this year. Ruscier Charma, welcome to Bloomberg 0:02:50.560 --> 0:02:52.959 to be your Mary. Thanks. So I have so much 0:02:52.960 --> 0:02:55.919 stuff to go over with you. I'm I'm fascinated by 0:02:56.080 --> 0:02:59.880 your background and and your travel history. How did you 0:03:00.440 --> 0:03:03.760 develop a love for international travel? Yeah, you know, like 0:03:03.760 --> 0:03:07.360 I've had a nomadic existence, I um. I was born 0:03:07.400 --> 0:03:09.880 in the south of India, and then because my father, 0:03:09.919 --> 0:03:13.480 as you mentioned at the outset, was in the services. 0:03:13.520 --> 0:03:15.840 He was a naval officer and also spent some time 0:03:16.320 --> 0:03:20.560 as a diplomat in overseas locations like Singapore. So that's 0:03:20.560 --> 0:03:23.679 why I had a nomadic existence, traveling from one place 0:03:23.720 --> 0:03:26.560 to another. I think that may have some way seated 0:03:26.639 --> 0:03:29.080 this interest in global affairs at a young age. So 0:03:29.160 --> 0:03:33.239 before you started at Morgan Stanley in six how many 0:03:33.280 --> 0:03:36.440 countries have you lived in or at least visited prior? 0:03:36.640 --> 0:03:38.400 I had lived in for a large part of my 0:03:38.480 --> 0:03:41.240 life in India and then also in Singapore. And although 0:03:41.280 --> 0:03:43.840 I had visited other places, I um, you know, like 0:03:44.240 --> 0:03:46.600 apart from Europe and being to London, et cetera. But 0:03:46.880 --> 0:03:49.600 I'd say that it was my education in Singapore. I 0:03:49.600 --> 0:03:52.440 went to a school they called the United World College, 0:03:53.080 --> 0:03:56.080 and uh, at a very young age, they sort of 0:03:56.160 --> 0:03:58.720 paid a lot of attention because it was an international school. 0:03:58.960 --> 0:04:01.240 They paid a lot of attain to sort of uh 0:04:01.520 --> 0:04:04.640 showing you about exactly like about global affairs and and 0:04:04.640 --> 0:04:06.640 it's also like these are things which are so hard 0:04:06.680 --> 0:04:09.680 to know when or water or y. But at a 0:04:10.080 --> 0:04:11.520 someone like at a very young age, I was always 0:04:11.600 --> 0:04:14.040 very interested in current interfairs, whether it was Indian current 0:04:14.080 --> 0:04:16.960 affairs or global current interfairs. And I think that that's 0:04:17.000 --> 0:04:19.800 what really sort of uh set me in motion here. 0:04:19.960 --> 0:04:22.680 So so let's talk about your job at Morgan Stanley. 0:04:22.720 --> 0:04:26.680 You're you're their global chief strategist as well as head 0:04:26.720 --> 0:04:29.560 of Emerging Markets. What do those jobs and tell? But 0:04:29.640 --> 0:04:32.360 I'm basically like an investor, So the investment management side 0:04:32.480 --> 0:04:36.680 I spend. I've always been on the investing side, and 0:04:36.920 --> 0:04:41.080 uh so, um, I run money or managed money. So 0:04:41.600 --> 0:04:44.640 is that is that number of ballpark twenty billion dollars? Yes, 0:04:44.680 --> 0:04:46.720 that's right, just over twenty billion dollars in sort of 0:04:46.760 --> 0:04:51.040 assets under management and also sort of think about global 0:04:51.080 --> 0:04:53.440 macro issues for the firm, and so that's what sort 0:04:53.440 --> 0:04:55.479 of gives me my other title as being the chief 0:04:55.520 --> 0:04:58.880 Global Strategist. So how much of that money is dedicated 0:04:58.920 --> 0:05:01.120 to e M and how such of it is? Well, 0:05:01.120 --> 0:05:05.320 the money I directly manage is mostly dedicated to e M. Yeah, um, 0:05:05.560 --> 0:05:09.640 we also have some uh some global money which we manage, 0:05:10.000 --> 0:05:13.920 but mostly it is money that I manage. But in 0:05:14.000 --> 0:05:16.960 terms of the chief Global Strategies footprint really involves thinking 0:05:17.000 --> 0:05:22.000 a lot about the major global issues and interacting with 0:05:22.080 --> 0:05:25.280 clients and telling them about that. So there's no substitute 0:05:25.279 --> 0:05:28.520 for for boots on the ground and seeing contributely. Yes, 0:05:28.880 --> 0:05:30.880 how often are you on the road? How many countries 0:05:30.920 --> 0:05:33.039 do you go to a year? And what parts of 0:05:33.080 --> 0:05:35.760 the world have you been to recently? Yeah, I try 0:05:35.800 --> 0:05:39.680 an average, I'd say about one country a month, which is, 0:05:39.800 --> 0:05:42.719 you know, basically pick a country and spend nearly a 0:05:42.720 --> 0:05:44.600 week there or at least a few days there. If 0:05:44.640 --> 0:05:46.680 it's a small country, then maybe just go to the region. 0:05:47.400 --> 0:05:49.920 So that's what I've done for the last twenty years. Really, Yeah, 0:05:49.960 --> 0:05:52.040 because I find that there are two things here, you know, 0:05:52.080 --> 0:05:55.000 which are sort of very important out here. One is 0:05:55.000 --> 0:05:57.840 the fact that when you're on the ground, it focuses 0:05:57.880 --> 0:05:59.800 your mind like never before. Like I consider in my 0:06:00.080 --> 0:06:02.680 face and I can read all I want about Philippines, 0:06:03.160 --> 0:06:05.480 and I just will not get that involved with the 0:06:05.480 --> 0:06:08.200 Philippines until I go to the Philippines. And then when 0:06:08.240 --> 0:06:11.880 you are there, you're basically sort of you know, covering it, uh, 0:06:12.080 --> 0:06:14.200 top down to bottom up in terms of your meeting 0:06:14.240 --> 0:06:18.960 the policymakers, meeting government people, central bank people, You're meeting 0:06:19.240 --> 0:06:22.960 CEOs of companies, and then also meeting investors and you know, 0:06:23.000 --> 0:06:26.040 sort of other players in the marketplace. So I find 0:06:26.040 --> 0:06:29.320 that really fascinating, that one that it focuses your mind 0:06:29.560 --> 0:06:31.800 when you're on the ground, and to that you end 0:06:31.839 --> 0:06:34.640 up always picking up little details about that country which 0:06:34.680 --> 0:06:37.719 you wouldn't have if you were just doing an office 0:06:37.880 --> 0:06:40.599 in a dry research report. That's I'm doing the math 0:06:40.640 --> 0:06:43.039 in my head, one country a month for twenty years. 0:06:43.279 --> 0:06:46.039 How many countries have you been? I assume there are 0:06:46.040 --> 0:06:48.080 a few repeats, you know there are are there even 0:06:48.120 --> 0:06:51.279 two hundred forty countries? Aren't well, roughly that much. I 0:06:51.279 --> 0:06:54.440 think the UN councils over two hundred countries, So you know, 0:06:54.520 --> 0:06:57.440 like I counted the other day. Uh, and I've been 0:06:57.480 --> 0:07:00.000 to just over sixty countries. That's pretty good, that's pretty 0:07:00.040 --> 0:07:02.000 but you know, like that's amazing that I think that 0:07:02.000 --> 0:07:03.920 I've traveled so much, but I haven't that only been 0:07:03.920 --> 0:07:06.960 to sixty countries out of whatever two d odd countries 0:07:07.000 --> 0:07:09.240 that you can possibly go. Tom having said that, of 0:07:09.480 --> 0:07:12.960 a few key countries that I do visit repeated, like China, India, 0:07:13.000 --> 0:07:15.000 those are the kind of places where I've been to 0:07:15.080 --> 0:07:18.000 virtually every year. So this year, when you go overseas 0:07:18.000 --> 0:07:20.400 and you visit people, what do they want to talk 0:07:20.440 --> 0:07:24.840 about besides the US elections? Well, I mean that's really 0:07:24.920 --> 0:07:28.240 top of mind. I mean, there's never been dominating every absolutely, 0:07:28.240 --> 0:07:31.440 there's never been so much interest in the US elections 0:07:31.560 --> 0:07:33.840 or in US politics as has been the case this year. 0:07:34.000 --> 0:07:37.160 And you know, like yeah, even after the election was over, 0:07:37.680 --> 0:07:40.200 even now, people are still sort of dissecting it in 0:07:40.240 --> 0:07:42.200 a way that the you know, because I think that 0:07:42.200 --> 0:07:44.840 that's a that's the big difference that had someone like 0:07:44.920 --> 0:07:47.320 Hillary won the election, then I think that what would 0:07:47.320 --> 0:07:50.480 have happened was that in terms of that, I don't 0:07:50.480 --> 0:07:52.679 think the interests would have been that high. So whether 0:07:52.720 --> 0:07:55.560 we like Trump or not. The one thing which is 0:07:55.600 --> 0:07:57.880 great for I think is ratings and keeping the interest 0:07:58.000 --> 0:08:01.400 very high in US politics, no doubt about that. So 0:08:01.760 --> 0:08:05.520 given their interest in the U S election and given 0:08:05.560 --> 0:08:11.000 what Trump has said about um trade policies, what sort 0:08:11.040 --> 0:08:14.600 of reaction have you been hearing since the election from 0:08:14.680 --> 0:08:17.000 contacts overseas well? I think that, you know, there's a 0:08:17.000 --> 0:08:19.360 big fair factor just now because I think that in 0:08:19.400 --> 0:08:22.240 the emerging markets there's been a huge sort of shift 0:08:22.320 --> 0:08:25.560 in sentiment, which is that there was a sense before 0:08:25.600 --> 0:08:28.320 the election that you know, there's some sort of recovery 0:08:28.360 --> 0:08:31.880 as we under underwe in emerging markets. But after the 0:08:31.920 --> 0:08:34.480 election there's been a dramatic shift in mood because now 0:08:34.520 --> 0:08:37.000 all of a sudden, people are wondering that does this 0:08:37.120 --> 0:08:39.400 mean that the US is going to turn much more inward, 0:08:39.440 --> 0:08:42.720 more protectionist and the one place where sentiment is totally 0:08:42.760 --> 0:08:44.600 beaten down to fight that's my next top all, So 0:08:44.600 --> 0:08:46.559 I'm gonna go. That's my next country I'm gonna visit 0:08:46.640 --> 0:08:49.640 is Mexico. Has to be. Yeah, I'm Barry Ritolts. You're 0:08:49.720 --> 0:08:53.640 listening to Masters in Business on Bloomberg Radio. My special 0:08:53.679 --> 0:08:57.199 guest today is rusci Or Sharma. He is Morgan Stanley's 0:08:57.280 --> 0:09:01.840 Chief Global strategist and a world traveler. Most recently, he 0:09:02.000 --> 0:09:04.600 is the author of The Rise and Fall of Nations, 0:09:04.880 --> 0:09:08.480 Forces of Change in the Post Crisis World. Let's talk 0:09:08.520 --> 0:09:11.160 a little bit about the four d s you write 0:09:11.200 --> 0:09:17.000 about in the book depopulation, deglobalization, de leveraging and d democratization. 0:09:17.360 --> 0:09:19.400 I bet when you wrote it you weren't trying to 0:09:19.400 --> 0:09:22.280 be ironic. But here we are, and and each of 0:09:22.280 --> 0:09:25.240 these things are now much more intense subjects than they 0:09:25.240 --> 0:09:28.960 were just a few weeks ago. So let's start with depopulation. 0:09:29.280 --> 0:09:33.240 First of all, what is depopulation and how does population 0:09:33.400 --> 0:09:36.200 impact various countries? Yeah, look, you know, in terms of 0:09:36.240 --> 0:09:39.360 there's means uh so much handwringing over the last few 0:09:39.440 --> 0:09:43.040 years about why economic growth is so low across the world, 0:09:43.080 --> 0:09:45.319 and this is not just a US phenomena. It's across 0:09:45.360 --> 0:09:46.880 the world. In fact, there is no region in the 0:09:46.880 --> 0:09:49.280 world today which is growing at the pace it was 0:09:49.679 --> 0:09:52.360 before the global financial crisis of two thousand and eight. 0:09:53.120 --> 0:09:56.880 And one of the most underappreciated factors for this low 0:09:56.920 --> 0:10:01.520 economic growth environment is the change in demographics across the world, 0:10:01.520 --> 0:10:04.000 not just in the Western world as popularly believed, but 0:10:04.120 --> 0:10:06.760 also in large parts of the emerging world China, Korea, 0:10:06.880 --> 0:10:10.240 Taiwan and Russia, really because because the assumption has been 0:10:10.800 --> 0:10:13.200 that when you look at the Western world, you know, 0:10:13.240 --> 0:10:16.400 the Japanese or an aging society with no immigration and 0:10:16.440 --> 0:10:19.080 a limited number of young people. In China, their one 0:10:19.160 --> 0:10:23.680 child rule really has impacted um their demography. The US 0:10:23.720 --> 0:10:27.319 seems to be growing faster than Europe, but the assumption 0:10:27.400 --> 0:10:30.880 is always well, emerging markets in African South America, they 0:10:30.920 --> 0:10:33.640 have to be populating wildly. Are you saying that's not 0:10:33.720 --> 0:10:35.800 the case. That's true, but there's been a massive slow 0:10:35.840 --> 0:10:38.920 down in the growth of population across the world, and 0:10:39.000 --> 0:10:42.199 of course in places such as Germany or even Russia 0:10:42.240 --> 0:10:45.160 and all it's turned negative. The working ash population increases, 0:10:45.360 --> 0:10:48.559 really yes, and in China for the first time it's 0:10:48.559 --> 0:10:51.280 working ash population in fact fail last year. So these 0:10:51.280 --> 0:10:53.920 are huge changes which are taking place. But even in 0:10:53.960 --> 0:10:56.880 the very populous countries which you talk about in Africa 0:10:57.000 --> 0:11:00.880 and in places like India and Pakistan, the slow down 0:11:00.880 --> 0:11:03.520 in population growth rate has been quite sharp. Really, Like, 0:11:03.520 --> 0:11:05.559 as you know, there are two drivers of economic growth, 0:11:05.640 --> 0:11:08.040 which is one is the increase in labor force, and 0:11:08.080 --> 0:11:10.280 two is the increase in productivity. Those are the two 0:11:10.320 --> 0:11:13.160 things which drive economic growth. And when we look back 0:11:14.240 --> 0:11:16.520 in history, what we're gonna see is this, which is 0:11:16.520 --> 0:11:19.160 at the period from nineteen fifty till about two thousand 0:11:19.200 --> 0:11:23.040 and eight was the fastest growing period in the history 0:11:23.040 --> 0:11:26.520 of economic development, much faster than even the growth rates 0:11:26.600 --> 0:11:29.640 we saw in the Second Industrial Revolution in the late 0:11:29.720 --> 0:11:32.560 nineteenth century, when you had a massive movement productivity. And 0:11:32.600 --> 0:11:36.000 the reason for that was that the world's population and 0:11:36.040 --> 0:11:38.720 therefore the world's labor force, never grew at such a 0:11:38.800 --> 0:11:41.680 rapid pace as was the case between nineteen fifty and 0:11:41.679 --> 0:11:44.040 two thousands and eights. So so let's unpack that a 0:11:44.080 --> 0:11:47.079 little bit. I'm hearing you saying that there was used 0:11:47.160 --> 0:11:50.400 post war baby boom. We all know that that was 0:11:50.440 --> 0:11:54.079 not just the US but global. Yes. Um, you also 0:11:54.120 --> 0:11:58.240 had a massive uptick in productivity. Yes, at least until 0:11:58.960 --> 0:12:01.720 let's go at the late nine ten nineties, where there's 0:12:01.720 --> 0:12:04.240 an argument to be made that there's still an increase 0:12:04.240 --> 0:12:07.720 in productivity, we're just measuring it all wrong. And then third, 0:12:08.200 --> 0:12:11.280 we're now at a point where population growth has tailed off, 0:12:11.640 --> 0:12:14.079 and that's the new normal. That's the reason that the 0:12:14.160 --> 0:12:17.960 economy being as the single most important reason. As you said, 0:12:18.000 --> 0:12:21.160 like on productivity, there's still a debate where many people 0:12:21.200 --> 0:12:24.640 think it's being underestimated, mismeasured and stuff. But on the 0:12:24.679 --> 0:12:27.120 trends and demographics there can be no debate because those 0:12:27.160 --> 0:12:29.800 trains there to be seen. And here's the basic train, 0:12:30.040 --> 0:12:32.680 which is that still the middle of the last decade, 0:12:33.120 --> 0:12:35.880 the world's working each population was growing at a pace 0:12:35.920 --> 0:12:39.120 of about two percent. Here since there's been falling off 0:12:39.120 --> 0:12:41.400 a cliff and today that rate is down to one 0:12:41.440 --> 0:12:43.439 percent a year. Do you think we're going to flatten 0:12:43.440 --> 0:12:45.640 out or even go negative? Well, I don't know about 0:12:45.679 --> 0:12:48.240 being negative, but the peace is set to slow down further. 0:12:48.400 --> 0:12:51.560 Because that's fascinating because we've my whole life, I've heard 0:12:51.640 --> 0:12:57.240 these dystopian forecasts that overpopulation ten billion, fifteen billion, twenty billion, 0:12:57.440 --> 0:12:59.760 what are we gonna do. We may actually reach, just 0:13:00.040 --> 0:13:03.520 basis and sort of fun a population that we tap 0:13:03.559 --> 0:13:06.000 out at eight nine billion. And yeah, I mean, the 0:13:06.040 --> 0:13:08.840 world's population is still set to increase further, but the 0:13:08.920 --> 0:13:11.840 pace has slowed down dramatically. So that's the important thing, 0:13:11.840 --> 0:13:15.120 and that's the very important variable for economic growth, which 0:13:15.160 --> 0:13:18.120 is Now let me ask you why is the population slowing? 0:13:18.120 --> 0:13:20.880 Because I would have assumed, well, wealthy countries tend to 0:13:20.920 --> 0:13:24.960 have better healthcare, access to birth control, fewer children. But 0:13:25.000 --> 0:13:27.719 you're implying this is a global phenomena. Yeah, but I 0:13:27.760 --> 0:13:29.840 think that it's also because you've had an increase in 0:13:30.080 --> 0:13:32.880 female participation in the labor force in many countries, and 0:13:32.960 --> 0:13:36.480 so people are having less babies in in general. So 0:13:36.559 --> 0:13:38.880 I think that it's also like a lifestyle issue. It's 0:13:38.920 --> 0:13:42.080 a it's a demographic issue in terms of the mortality 0:13:42.160 --> 0:13:44.800 rates have dropped everywhere, and so have the fertility rates 0:13:44.840 --> 0:13:48.520 have dropped even faster. You know, fertility rates drafting faster. 0:13:48.920 --> 0:13:51.320 What's the driver of that? Well enough example, take India, 0:13:51.320 --> 0:13:53.600 you know, my homeland, which is that that the real 0:13:53.760 --> 0:13:55.520 rate they used to be about six or so in 0:13:55.520 --> 0:13:57.960 the nine sixties, that's down to two and a half. 0:13:58.080 --> 0:14:00.640 Because you know, there are much more sort of sensitive 0:14:00.640 --> 0:14:03.880 about families about how many children that they're having. Uh, 0:14:04.120 --> 0:14:06.280 you know, so that that sort of paces slowed down 0:14:06.360 --> 0:14:09.760 dramatically back there. I could talk about population all day. 0:14:09.840 --> 0:14:13.720 Let's move on to the other d's deglobalization. Yeah, given 0:14:13.760 --> 0:14:15.760 the results of the election. Let's talk a little bit 0:14:15.760 --> 0:14:18.920 about trade barriers and how important free trade is to 0:14:18.960 --> 0:14:21.600 the global economy. Yeah, you know, there are three drivers 0:14:21.640 --> 0:14:24.480 I think of globalization, right, so we think of it 0:14:24.520 --> 0:14:27.280 mostly in terms of trade. But the other two drivers 0:14:27.320 --> 0:14:30.680 are capital, right, the free movement of capital between boarders, 0:14:30.760 --> 0:14:34.320 and the third is doe with immigration, trade, capital and immigrants. 0:14:34.760 --> 0:14:38.840 So these are the three tenets of traditional globalization. All 0:14:38.920 --> 0:14:43.080 these three increased massively in the nineteen eighties and nineteen nineties, 0:14:43.200 --> 0:14:45.440 right up until the financial crisis of two thousand and eight. 0:14:45.440 --> 0:14:48.840 You've got explosion in all these three. Since two thousand 0:14:48.920 --> 0:14:52.520 and eight, they've all slowed down dramatically. So cross border 0:14:52.600 --> 0:14:55.760 capital movements much slower than much slower, absolutely, I mean 0:14:55.800 --> 0:14:58.520 like those are virtually collapsed. And we know immigration has 0:14:58.560 --> 0:15:02.280 certainly can hit actually slowed down, and trade and trade 0:15:02.320 --> 0:15:04.040 has slowed down. That you know, we have we've all 0:15:04.080 --> 0:15:06.480 been used to a world where trade has increased at 0:15:06.480 --> 0:15:09.280 a rate which is much much faster than global economic growth. 0:15:09.400 --> 0:15:11.160 And that's not a one off course I've seen the 0:15:11.200 --> 0:15:14.320 occasional monthly trade is a little less. No, it's a 0:15:14.360 --> 0:15:16.800 month you're phenomenon. I'm saying that This is persistent now 0:15:17.040 --> 0:15:19.360 on a train basis this decade, and if you look 0:15:19.400 --> 0:15:21.840 at the policies that the governments are taking, I think 0:15:21.840 --> 0:15:24.560 that these trends will only intensify. And the election, which 0:15:24.560 --> 0:15:27.760 you pointed out just now in the US is basically 0:15:28.080 --> 0:15:31.600 another traind an answer. I trade ell actually some degree, 0:15:31.720 --> 0:15:34.600 I mean, we'll see what actually of TPP and done with. 0:15:34.920 --> 0:15:37.160 I think a TPP et cetera are dead. I mean, 0:15:37.200 --> 0:15:39.280 I really don't think that those things after we're going 0:15:39.320 --> 0:15:41.680 to see a change. And is it realistic to change now? 0:15:41.800 --> 0:15:43.600 It's gonna be much more difficult. But I think that 0:15:43.760 --> 0:15:45.960 you know, that is something that we're likely to like 0:15:46.040 --> 0:15:48.600 to obviously see touched upon. As I said, at this stage, 0:15:48.600 --> 0:15:51.120 it's very hard to know what all Trump is going 0:15:51.160 --> 0:15:53.200 to follow through on, in which on what he said 0:15:53.200 --> 0:15:55.240 in the election, But I think the direction is clear, 0:15:55.320 --> 0:15:57.200 which is on all these three things. I do not 0:15:57.320 --> 0:16:00.200 see a major pickup taking place anytime soon. And here 0:16:00.200 --> 0:16:02.360 at history is very instructive. In fact, I've looked at this, 0:16:02.680 --> 0:16:06.200 which is that globalization tends to move in waves, which 0:16:06.200 --> 0:16:09.480 are multi decade waves. We saw a big increase in 0:16:09.480 --> 0:16:13.640 globalization take place also in the late nineteenth century right 0:16:13.680 --> 0:16:16.360 up until the first decade of the twentieth century, and 0:16:16.400 --> 0:16:19.160 then from nineteen fourteen onwards with the outbreak of the 0:16:19.160 --> 0:16:22.240 First World War, we've got a big decline in globalization 0:16:22.280 --> 0:16:25.760 which lasted for many decades. So my sort of bet 0:16:25.760 --> 0:16:28.840 at this point is that the globalization is here to stay. 0:16:28.960 --> 0:16:31.840 This is the new buzzword and a multi year traind 0:16:31.920 --> 0:16:36.320 not just uh, you know, like a freak data event. 0:16:36.640 --> 0:16:39.880 I'm very results. You're listening to Masters in Business on 0:16:39.960 --> 0:16:44.120 Bloomberg Radio. My special guest today is Russier Sharma. He 0:16:44.280 --> 0:16:48.240 is Morgan Stanley's chief Global strategist and head of Emerging 0:16:48.280 --> 0:16:52.080 Markets and manages over twenty billion dollars in assets. He 0:16:52.240 --> 0:16:55.600 is a frequent contributor to various media outlets and is 0:16:55.640 --> 0:16:58.360 the author of The Rise and Fall of Nations and 0:16:59.040 --> 0:17:02.640 Breakout Nation, which was a highly regarded book that came 0:17:02.640 --> 0:17:07.680 out in So let's talk about that phrase. What is 0:17:07.720 --> 0:17:11.160 a breakout nation? Right at that point in time when 0:17:11.200 --> 0:17:13.280 I wrote the book, it was really sort of to 0:17:13.960 --> 0:17:16.600 bust the myths of the brick countries, which is that 0:17:16.680 --> 0:17:20.080 there was so much hype about the brick nations last decade. Right, 0:17:20.200 --> 0:17:23.760 Thank you for that, because it seems like Brick was 0:17:23.880 --> 0:17:28.400 created because it was an amusing acronym, but really, what 0:17:28.480 --> 0:17:32.440 is it that ties China? But I think yeah, but 0:17:32.480 --> 0:17:34.320 I think if to understand the sociology as to why 0:17:34.400 --> 0:17:36.800 it became so popular, which at that last decade, we 0:17:36.840 --> 0:17:41.080 saw an unprecedented boom in emerging markets. Virtually every emerging 0:17:41.160 --> 0:17:45.119 market did well last decade in economic growth terms, equity 0:17:45.160 --> 0:17:48.600 market performance, financial terms, every emerging market did well. And 0:17:48.640 --> 0:17:52.159 then Brick captured the four largest emerging markets. That's it. 0:17:52.320 --> 0:17:55.600 So this was a great marketing acronym, but like all 0:17:55.680 --> 0:18:00.720 marketing creations, it had a use markets. So so I 0:18:00.720 --> 0:18:02.720 think that there's there were a flurry of acronyms which 0:18:02.720 --> 0:18:05.720 came out even after Brick, but they've all failed since 0:18:05.880 --> 0:18:08.600 and Brick today appears like such a last decade concept. 0:18:09.119 --> 0:18:12.040 So the book in two thousand and twelve, which I wrote, 0:18:12.040 --> 0:18:14.880 Breakout Nations, was that, Okay, the Brick era is over. 0:18:15.200 --> 0:18:17.439 Which are the next countries which are likely to do 0:18:17.520 --> 0:18:20.480 well across the world. Let's talk about that. What are 0:18:20.560 --> 0:18:23.399 some of the countries that may not make for a 0:18:23.400 --> 0:18:26.840 perfect acronym but have a lot of growth potential? Yeah, 0:18:26.840 --> 0:18:28.640 you know, when I wrote that book. At that point 0:18:28.720 --> 0:18:30.880 in time, I had pointed out in the emerging world 0:18:30.920 --> 0:18:34.680 to countries such as Philippines, Indonesia, I had pointed out 0:18:34.720 --> 0:18:39.480 to some countries in Eastern Europe such as Poland, Czech Romania, 0:18:39.760 --> 0:18:41.880 and then I'd also sort of pointed out to some 0:18:42.000 --> 0:18:45.919 so called frontier markets. Now I'm out to find the 0:18:45.960 --> 0:18:49.040 difference between emerging and frontier. Yeah. I think the difference 0:18:49.080 --> 0:18:51.639 between emerging in frontier, at least in the investing world, 0:18:51.680 --> 0:18:54.680 is that emerging markets are seen to be mainstream countries 0:18:54.720 --> 0:18:57.800 in which you can easily invest and get your money 0:18:57.840 --> 0:19:00.800 like in and out. Frontier tends to be the next category, 0:19:00.880 --> 0:19:03.560 which are markets which are slightly off the beaten downpath. 0:19:03.720 --> 0:19:05.720 Give us a few examples. Yeah, For example, like in 0:19:05.760 --> 0:19:10.159 the frontier markets today, you would have countries such as Kazakhistan, 0:19:10.440 --> 0:19:12.760 or you would have Romania. But the largest ones you 0:19:12.760 --> 0:19:16.000 would have our Nigeria, Vietnam. I was going to ask 0:19:16.000 --> 0:19:20.320 you about Vietnam. Frontier market, not a emerging market, not 0:19:20.400 --> 0:19:22.879 as yet. It's a classification issue, right, which is that 0:19:23.200 --> 0:19:26.000 the difference is not that much, But it's a classification issue. 0:19:26.119 --> 0:19:28.680 So how do you define that when I think of Vietnam. 0:19:28.720 --> 0:19:33.640 I think of a country that is rapidly adopting Western 0:19:33.720 --> 0:19:37.879 technology and and all variations of capitalism, a lot of 0:19:37.920 --> 0:19:41.440 outsourcing to Vietnam. They're a competitor to China, and they 0:19:41.480 --> 0:19:43.840 seem to be booming. Yeah. I mean, like Vietnam is 0:19:43.880 --> 0:19:45.680 a country that I'm optimistic on in my in my 0:19:45.760 --> 0:19:48.560 latest book, when apply the ten rules, Vietnam does come 0:19:48.640 --> 0:19:51.399 up fairly well. What about Turkey. Turkey is one of 0:19:51.400 --> 0:19:53.720 those countries. Turkey the country on which I've changed my mind, 0:19:53.760 --> 0:19:55.720 which is that Turkey used to be a country which 0:19:55.760 --> 0:19:59.520 in Breakout Nations I was relatively optimistic on. But I 0:19:59.560 --> 0:20:02.719 think that from about two thousand and thirteen, when Urduan 0:20:02.840 --> 0:20:05.320 began to lose the plot, I think that since then 0:20:05.359 --> 0:20:08.000 I've been much more skeptical on Turkey, and remains skeptical 0:20:08.040 --> 0:20:10.439 on Turkey today because Turkey is a country which is 0:20:10.640 --> 0:20:13.800 running massive financial imbalances, one of the largest current account 0:20:13.800 --> 0:20:16.600 deficits of any emerging market. It has not been able 0:20:16.600 --> 0:20:19.600 to correct that despite the very sharp fall in commodity prices. 0:20:19.840 --> 0:20:21.480 And then you have the case of Urduan. I mean, 0:20:21.520 --> 0:20:23.399 here is a leader who seems to have overstayed his 0:20:23.480 --> 0:20:26.159 welcome in power. When Urduan first came to power, he 0:20:26.320 --> 0:20:29.080 was a reformer. He wanted to take Turkey closer to Europe. 0:20:29.200 --> 0:20:33.159 He implemented lots of reforms to try and meet the 0:20:33.240 --> 0:20:37.000 requirements towards a move to the European Union. But if 0:20:37.000 --> 0:20:39.240 you look at how he's governed in the last few years, 0:20:39.440 --> 0:20:42.600 it's been very different. That his entire focus has been 0:20:42.680 --> 0:20:45.760 on cementing his hold on par even if that comes 0:20:45.760 --> 0:20:48.960 at a major economic cost. So let's talk about something 0:20:49.040 --> 0:20:52.159 related to that. The old line I was familiar with 0:20:52.400 --> 0:20:56.760 was geography is destiny, right, but your variation of it 0:20:56.960 --> 0:21:00.840 is look for the geographic sweet spa. So what is 0:21:00.840 --> 0:21:04.560 the geographic sweet spot and what countries are are in it? Yeah, So, 0:21:04.640 --> 0:21:06.040 like what I mentioned there is that if you look 0:21:06.080 --> 0:21:09.199 at the history of economic development, countries, particularly the mid 0:21:09.280 --> 0:21:11.919 too small countries have done well when they are in 0:21:11.960 --> 0:21:14.040