Ruchir Sharma Breakout Nations Pdf 47
Chrystal Dueno
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As a @FinancialTimes and @NewYorkTimes columnist, Chairman of @RockerfellerInternational and former head of Emerging Markets Equity at @MorganStanley, Ruchir is the perfect person to discuss the new risks and opportunities in our changing global landscape. We explored questions including:
An experienced writer and traveler, Ruchir shares insights gained from over 30 years of writing about global economics and politics. By being on the ground, visiting bazaars and markets, meeting leading policy makers and investors and experiencing different cultures firsthand, Ruchir discovers small details that underpin his understanding of local context and enable him to make informed investment decisions.
Investors who can tailor their strategies and policies to address the specific risks and opportunities of different countries are more likely to succeed, especially in uncertain times when economic prospects can change rapidly.
The implications of this shift are significant, particularly for the global financial architecture. For example, Ruchir suggests that many countries have looked to reduce their dependence on the dollar, having seen the impact of sanctions on Russia. As a result, these countries are increasingly diversifying their foreign exchange reserves with alternatives like gold.
And as a reminder, while my conversations contain broad advice that can be useful for investors, we highly recommend that individual investors consult with an independent financial advisor before making any investment decision.
Sam: Let's start with you. Your journey into the world of business, because it is one that spans many countries, but primarily India. So I'd like to know how you got interested in finance and economics, having started, if I understand it correctly, as a writer?
Ruchir: My start was a bit interesting in this way, which is that I've never been a full time writer. What happened was that at a young age I was fortunate enough to be very focused on what I wanted to do. My father was in the Indian Navy and then he was a diplomat for a few years in Singapore. He was posted there. That was when I was in the eighth and ninth grade. And I got a real curiosity about foreign affairs and global affairs, really starting back then. And then when I moved back to India, I wanted to keep that line of thinking going. So what happened was that after I finished 12th grade, I started to write for one of India's leading economic newspapers. And at that point in time, 1991, there were very few people in India who were really covering what was happening outside of India. India was still a relatively closed economy. It was just about opening up and liberalising. And so at that age, there was nobody who would give me money to manage. So the next best thing to do was to write about macroeconomics. So even though eventually I always wanted to become an investor. So I started to write on global macroeconomics because that was the best way for me to come out to the world and do something I was passionate about. And in 1996, those columns really, in a way, helped me get into Morgan Stanley because I was all set to come and do my postgraduate studies here in the US. That's what my aim was when some senior executives at Morgan Stanley happened to read what I was writing and made an offer that I couldn't refuse by saying they do want to make money or do you want to study? So I said, I want to make money. So I joined Morgan Stanley on the investing side and I carried on writing on the side all the time. So it's been over 30 years that I've written either a column or a book.
What happens is that you just sort of get trained a bit to think that when you go to these places, for example Croatia, which would not be even investable, you're always thinking about what's been the development history? What's the per capita income? When did these countries really start to grow? What's been their post communist era experience? So it's that kind of conversation that you keep having all the time. What I really tried to do was to systematise this process like on politics, for example, one of the rules that I have is that normally for a nation, when you elect a new leader, typically the first 6 to 18 months of a new leader coming to power tend to be very good for that country, especially from an investing perspective and a stock market perspective. You get fresh energy, especially when the country is going through a crisis, you know, like a new leader that has the political and the broad support even to carry out big bang economic reforms, to change the direction of a country, get the maximum bang for the buck. And then I also figured out the longer a leader stays in power, the worse it is for a country. And I learned this the hard way as well. Sometimes, like if you look at the likes of Putin and Erdogan, I think what many people forget is that when they first came to power in the early 2000s, they were reformers, at least from an economic perspective. Their countries had gone through a lot of turmoil and they were looking to reform their countries by moving the countries towards a more free market capitalist system. And as they stayed in power for longer that they reverted back to their statism and have taken their economies in a very troubling direction. So I mapped that out with a broad template that I have tried to build.
Sam: Given the travel you've done, the conversations you've had. What is it that people in the West miss when assessing emerging markets? And what are the conversations you have with people to convince them to widen their horizons when they look at the opportunities or not in these parts of the world?
Ruchir: Well, I think that the biggest issue is that most people speak about emerging markets as if they're one block, that these are emerging markets, but there's massive differentiation here and that economic prospects can change both for the better or for the worse quite quickly. In the 2000s, we all got carried away by the emerging market boom because the BRICs were seen to conquer the world. That was the fashionable acronym of their decade. And you ended up getting a huge spurt and economic growth across emerging markets. Every country was growing very rapidly and the BRICs obviously did really well there as the largest economies of that cohort. But then the subsequent decade, as we have seen the last decade, many emerging markets have fallen by the wayside and now the troubles have spread to China as well. So you've had these big cycles, but within that there's lots of distinction and especially now in this era, the differentiation is huge. You have India doing something very different in terms of its growth trajectory compared to, let's say, Argentina. Or you have like China doing something very different now compared to Vietnam, which may be the new China that's emerging. So I think this differentiation within emerging markets is something which a lot of people don't do enough. And it's very easy to club everything as one economic block.
Sam: That's definitely the case. And when you speak to business leaders in the markets that you look at very closely, how are they viewing opportunity given the global order is changing in quite a fundamental way?
Ruchir: Yes, I think there's a massive rethink on China, right. That's the biggest change which has happened, that three years ago every CEO wanted to show like, you know, what's the China strategy? And then in the last 2 or 3 years, you've seen this huge shift where everyone's trying to figure out how do we diversify out of China? How do we minimise our exposure to China? So it's this huge shift on China that's taken place and then that's opened up a new world, which is that okay, if not China, what should we do? Which are the countries that we can possibly establish some outsourcing that's opened up the opportunity for lots of other countries. People are much more excited now with the likes of Mexico or of course, India and Indonesia as places as alternatives where they can establish some sort of a offshoring outsourcing presence as they minimise their risk to China. They can't just all yank their exposure out of China, but it's like, okay, from now on, what if we have to set up a new factory or a new outsourcing unit? It's got to be somewhere but China.
Ruchir: Yes, because a lot of companies have just too much exposure to China. Their supply chains and or even their consumer interface is too huge in China for them to just shut shop and go home. But I think that everyone's looking to diversify. What happened in Russia last year really sent huge shock waves for a lot of Western business leaders. Right? Because so many were forced to write off their exposure to Russia to virtually zero. Like gone.
Ruchir: Yeah, and it was even worse for investors because for investors who had any exposure to Russia because of the sanctions, it was typically written off to zero. So that was like a huge shock. So now with China, what happens is this, even though the risk of that happening in China is low, it's not zero. So what happens now is that a lot of businesses and investors are thinking that, okay, in Russia, I've yet to write it off to zero and we could sort of justify that to our shareholders or investors by saying that it was a truly unanticipated shock. But in the very small probability that, let's say, China invades Taiwan or something, if a similar type of sanctions regime is imposed on China where you're forced to write stuff off, it'll be much harder to justify to your investors or to your shareholders that why were you in China today? So, you know, it's this very delicate balance that people have to do that China's a much larger, more important market than Russia. The exposure is far more significant. And yet this risk exists.
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