Latest / Bloomberg Intelligence / Ruchir Sharma: Time To Distinguish Between EM Countries (Audio)

Transcript

Ruchir Sharma: Time To Distinguish Between EM Countries (Audio) · Bloomberg Intelligence

• 0:03
  Speaker 1: Global business news twenty four hours a day. If Bloomberg
• 0:06
  Speaker 1: dot com, the radio plus mobile app and on your radio.
• 0:09
  Speaker 1: This is a Bloomberg Business Flash. Broom, Bloomberg World Handquarters.
• 0:14
  Speaker 1: I'm Charlie Pellett. The SMP five hundred index trading near
• 0:17
  Speaker 1: a ten month high. It is a down day for stocks,
• 0:19
  Speaker 1: thirteen minutes to go. Ahead of the close, Investors are
• 0:23
  Speaker 1: evaluating the gauges run toward a record amid lingering concerns
• 0:26
  Speaker 1: about the impact of lackluster global growth. The SMP five
• 0:31
  Speaker 1: hundred index Little change now down less than point one percent,
• 0:34
  Speaker 1: falling two points to seventeen, and has stackdown twelve a
• 0:38
  Speaker 1: drop of two tents of one percent down. Industrial is
• 0:41
  Speaker 1: now down three points. Little change there at eighteen thousand
• 0:45
  Speaker 1: one ten. You up seven thirty seconds, the yield one
• 0:48
  Speaker 1: point six seven percent, Gold up ten fifty ounce to
• 0:52
  Speaker 1: twelve seventy two, a gain of eight tenths of one percent,
• 0:55
  Speaker 1: and crude oil down or one point three percent fifty
• 0:58
  Speaker 1: dollars fifty nine cents. I'm Charlie Pellett, and that's a
• 1:02
  Speaker 1: Bloomberg Business Flash. Charlie Pellett, thank you so very much.
• 1:08
  Speaker 1: Now it is time for the e t F report,
• 1:10
  Speaker 1: and it's brought to you by Vanack Vectors e t
• 1:12
  Speaker 1: F expect more from your muni's target tax exempt income
• 1:15
  Speaker 1: by maturity and credit quality, all with low cost e
• 1:18
  Speaker 1: t F s. Visit at neck dot com slash Muni
• 1:21
  Speaker 1: Vanek access the opportunities for report. Today on the e
• 1:25
  Speaker 1: t F S, we turned to Catherine Connery. Investors are
• 1:28
  Speaker 1: awaiting a potential market moving event in the coming week.
• 1:31
  Speaker 1: It's something that people should be aware of because it's
• 1:33
  Speaker 1: a big variable investing in emerging markets in China right now,
• 1:36
  Speaker 1: and it's not something you would think about because has
• 1:38
  Speaker 1: nothing to do with macro, you know, situations, or the
• 1:42
  Speaker 1: FED or anything. Bloomberg Intelligence analist Eric valtunis, so what
• 1:46
  Speaker 1: is this event? MSCI will unveil the results of its
• 1:49
  Speaker 1: annual review. Assets worth ten and a half trillion dollars
• 1:52
  Speaker 1: or benchmark to MSCIS indexes. About thirty six point nine
• 1:56
  Speaker 1: billion are tied to emerging market e t s and
• 1:58
  Speaker 1: four five million in is an e t S attract
• 2:01
  Speaker 1: frontier markets. Valtuna says their speculation about whether m s
• 2:05
  Speaker 1: c I will include China's mainland stocks or a shares
• 2:08
  Speaker 1: if they say that A shares from China will start
• 2:12
  Speaker 1: to be included. China will go from say an eighteen
• 2:15
  Speaker 1: percent waiting, which it is now, and they'll add maybe
• 2:19
  Speaker 1: one or two percent at first, so it'll go up,
• 2:22
  Speaker 1: but over ten years it'll go it'll double. That's how
• 2:25
  Speaker 1: big the A share market is. We're talking about a
• 2:27
  Speaker 1: five six trillion dollar market. And that's your Bloomberg ETF report.
• 2:31
  Speaker 1: I'm Katherine Cowdery. You're listening to Taking Stock with Vim
• 2:36
  Speaker 1: Box and Kathleen Hayes on Bloomberg Radio. In December tw
• 2:42
  Speaker 1: our next guest was on the road in India. He
• 2:46
  Speaker 1: was interviewing locals in connection with the upcoming elections. His
• 2:51
  Speaker 1: new book is entitled The Rise and Fall of Nation's
• 2:55
  Speaker 1: Ten Rules of Change in the Post crisis World. He's
• 2:58
  Speaker 1: the previous author and of Breakout Nations Who Share. Sharma
• 3:04
  Speaker 1: is the head of Emerging Markets and chief Global Strategies
• 3:06
  Speaker 1: for Morgan Stanley Investment Management. Were thank you very much
• 3:10
  Speaker 1: for joining us. Thanks tell us what you learned by
• 3:14
  Speaker 1: traveling around India and speaking with locals about their lives. Well, Uh,
• 3:21
  Speaker 1: that chapter that they're referring to is called the Price
• 3:23
  Speaker 1: of Onions. And what it really told me was that
• 3:26
  Speaker 1: how concerned the population there was about inflation, and when
• 3:31
  Speaker 1: the population is really concerned about rising prices, that can
• 3:35
  Speaker 1: be the absolute deathanels for the government in power. So
• 3:39
  Speaker 1: in India, there was a lot of resentment back then
• 3:42
  Speaker 1: about what the government had done with tackling inflation, and
• 3:47
  Speaker 1: a few months later the central government lost the election
• 3:51
  Speaker 1: in the landslide victory that Narina Remodi enjoyed in Mayo.
• 3:57
  Speaker 1: So therefore, I think that inflation tears you a lot
• 4:00
  Speaker 1: about what's happening in the country, how much is it investing,
• 4:03
  Speaker 1: and what is the political mood like in a country.
• 4:06
  Speaker 1: And so I think that was it sort of solidified
• 4:09
  Speaker 1: that opinion. Uh, it's such a great time for a
• 4:15
  Speaker 1: book like yours to come out, and of course as
• 4:16
  Speaker 1: your second big book on e t s. And a
• 4:20
  Speaker 1: story this week on Bloomberg mentions that assets of black
• 4:27
  Speaker 1: Rocks flagship e t F from Emerging Market Debt Search
• 4:31
  Speaker 1: to six and a half billion dollars is eclipsing the
• 4:33
  Speaker 1: largest mutual fund in the category ETFs gaining ground. But
• 4:37
  Speaker 1: I think the story here is really the interest that
• 4:40
  Speaker 1: people have now in emerging markets. I guess it's partly
• 4:43
  Speaker 1: because they can't get so much return in US and
• 4:45
  Speaker 1: other developed countries, and they're we're willing to take a
• 4:47
  Speaker 1: gamble on emerging markets. But the emerging markets have underperformed
• 4:52
  Speaker 1: a lot this decade, and I think that there is
• 4:54
  Speaker 1: a growing view now that maybe the worst is behind us.
• 4:59
  Speaker 1: The valuation of the entire asset class looks very appealing.
• 5:02
  Speaker 1: But of course, as you know that as an active manager,
• 5:05
  Speaker 1: I cannot be endorsing e T s and we have
• 5:07
  Speaker 1: at least sort of always beat in the benchmark. And
• 5:11
  Speaker 1: I think that the entire issue here, and that's what
• 5:13
  Speaker 1: I speak on about in my book, is that to
• 5:16
  Speaker 1: stop talking about emerging markets as a homogeneous entity. That
• 5:20
  Speaker 1: you know, this is nearly the global economy now and
• 5:23
  Speaker 1: we need to distinguish the good, the average, and the
• 5:25
  Speaker 1: ugly within that very large space. And so that's what
• 5:29
  Speaker 1: I try and do that try and sort of see
• 5:31
  Speaker 1: what are the ten most important things to look at
• 5:34
  Speaker 1: to try and distinguish between different countries. And we have
• 5:38
  Speaker 1: seen that this decade that you have countries like Philippines
• 5:40
  Speaker 1: which have done very well. On the other hand, the
• 5:42
  Speaker 1: countries like Brazil have been an absolute economic disaster, and
• 5:46
  Speaker 1: I think that that's what we have to do here,
• 5:47
  Speaker 1: which is to sort of spot the winners and separate
• 5:50
  Speaker 1: them from the losers. And that's the game that you
• 5:52
  Speaker 1: always have some winners and losers. In such a large space,
• 5:56
  Speaker 1: we see the good the bad, and I'm not going
• 5:59
  Speaker 1: to win include the ugly because i want you to
• 6:01
  Speaker 1: speak about a chapter about good billionaires and bad billionaires
• 6:06
  Speaker 1: and what we can learn. Yeah, you know, like five
• 6:09
  Speaker 1: years ago, I would have not included a chapter on
• 6:12
  Speaker 1: reading income in equality in a country, but it's become
• 6:15
  Speaker 1: such a big global issue now and everywhere I go
• 6:18
  Speaker 1: from Soul to Santiago, income inequality is a very big issue.
• 6:23
  Speaker 1: The problem is that how do you get a proper
• 6:25
  Speaker 1: read on income in equality? The data that economists look at,
• 6:28
  Speaker 1: like Genie coefficient and other such stuff is very backward looking.
• 6:32
  Speaker 1: And what I'm trying to do here is to figure
• 6:34
  Speaker 1: out that when is it that the popular mood in
• 6:37
  Speaker 1: a country turns against the rich or turns against the
• 6:41
  Speaker 1: wealth creation. And that way I my sort of method
• 6:47
  Speaker 1: that I've developed is to look at the good and
• 6:48
  Speaker 1: the bad billionaires in the country. What do I mean
• 6:50
  Speaker 1: by that, which is that when a country is producing
• 6:53
  Speaker 1: wealth in the so called good industries, which is industries
• 6:58
  Speaker 1: which reward genuine and um entrepreneurial talent, like in manufacturing,
• 7:03
  Speaker 1: like in technology, that's good billionaires. On the other hand,
• 7:07
  Speaker 1: when you're producing wealth in industries such as um real estate, mining, commodities,
• 7:13
  Speaker 1: often with the help of government connections in that country,
• 7:17
  Speaker 1: or because you inherited a lot of that willth that
• 7:19
  Speaker 1: is perceived as being bad. So what I try and
• 7:21
  Speaker 1: do is to have a look all the time at
• 7:24
  Speaker 1: the ratio of good to bad billionais in a country
• 7:27
  Speaker 1: and what that tells you about countries fate. You know,
• 7:31
  Speaker 1: so many great chapters. Let's take a look at why
• 7:33
  Speaker 1: democratic capitalism beats the Chinese brand, because over the past
• 7:37
  Speaker 1: ten years or so, there are a lot of people saying,
• 7:39
  Speaker 1: oh that this the brand of Chinese capitalism works best
• 7:42
  Speaker 1: for them and probably better than US style capitalism would.
• 7:46
  Speaker 1: And of course now we see the China economy slowing.
• 7:48
  Speaker 1: We see George Soros of the past, you know, four
• 7:51
  Speaker 1: or five six months uttering words here and there about
• 7:54
  Speaker 1: a debt bomb that's about ready to go off in China.
• 7:57
  Speaker 1: Very very cautious there. What do you see? Yeah, I
• 8:01
  Speaker 1: think that as far as China is concerned, UH, its leadership. UH.
• 8:05
  Speaker 1: You know what, there's a lot of right for the
• 8:08
  Speaker 1: country till about two thousand and eight or so, and
• 8:11
  Speaker 1: then that same authority in leadership, which could take very
• 8:14
  Speaker 1: quick decisions, began this huge stimulus program in UH at
• 8:19
  Speaker 1: the depths of the crisis, and there's still paying a
• 8:21
  Speaker 1: price for it. So my point here is the fact
• 8:24
  Speaker 1: that authority in governments can make quick decisions, but they
• 8:28
  Speaker 1: either get it very right or very wrong. And when
• 8:30
  Speaker 1: they get it very wrong, there are no checks and
• 8:33
  Speaker 1: balances to put them on the right course. And also
• 8:35
  Speaker 1: for every success story like China, I can point out
• 8:38
  Speaker 1: to you many authority in regimes in Africa and Latin
• 8:41
  Speaker 1: America who got it totally wrong. So it really depends
• 8:45
  Speaker 1: on the quality of the leadership. And in China's case, UH.
• 8:48
  Speaker 1: I think what's happened is this that till about two
• 8:50
  Speaker 1: thousand and eight they were moving towards a more market
• 8:53
  Speaker 1: oriented economy and also that dead levels were quite stable.
• 8:57
  Speaker 1: But since then they've gone into reverse gear, which is
• 9:00
  Speaker 1: that the state has become more interventionist and that debt
• 9:03
  Speaker 1: levels have expluded. Here's one statistic which tells you as
• 9:06
  Speaker 1: to why you should be worried about China. Um, it
• 9:09
  Speaker 1: takes now six dollars of debt to create a dollar
• 9:14
  Speaker 1: of GDP growth in China. At the peak of the
• 9:17
  Speaker 1: U S housing bubble in two thousand and eight, it
• 9:19
  Speaker 1: took three dollars of debt to create a dollar of
• 9:21
  Speaker 1: GDP growth in uh the US. So that's how out
• 9:25
  Speaker 1: of balanced China has become today and how rapidly debt
• 9:28
  Speaker 1: is growing to sustain an increasingly slower economy. First years
• 9:34
  Speaker 1: speak about the United States if you can. You talk
• 9:36
  Speaker 1: about deep trade links, strong manufacturing and technology, as well
• 9:40
  Speaker 1: as good billionaires such as Bill Gates, but you also
• 9:43
  Speaker 1: have a debit side. Yeah, I think that. You know, like,
• 9:47
  Speaker 1: in no country in the world today, are we going
• 9:49
  Speaker 1: to be able to find a country that hits all
• 9:51
  Speaker 1: my ten rules and sort of checks all the boxes.
• 9:53
  Speaker 1: I think that's so to put that in perspective or
• 9:56
  Speaker 1: it's very easy to get pessimistic about a country because
• 9:59
  Speaker 1: it's very easy to find fault with a country because
• 10:01
  Speaker 1: no economy is growing at the pace that it was
• 10:04
  Speaker 1: growing last decade, from China to India to Brazil to
• 10:08
  Speaker 1: the United States. But we have to keep in perspective
• 10:11
  Speaker 1: that you have to compare countries on a relative basis,
• 10:14
  Speaker 1: and in that regard, I think where the United States
• 10:17
  Speaker 1: is still doing relatively better than many developed countries because
• 10:21
  Speaker 1: it's demographics are better, it's working. Each population is at
• 10:24
  Speaker 1: least still growing compared to many other countries where it
• 10:27
  Speaker 1: is shrinking, including in China. Now it's dead level has
• 10:30
  Speaker 1: stabilized after growing very rapidly last decade. And I also
• 10:36
  Speaker 1: feel that on some of the UH metrics, such as
• 10:40
  Speaker 1: the good billionaires, the United States still does better than
• 10:43
  Speaker 1: many other countries. That's why in very few other countries
• 10:47
  Speaker 1: would a billionaire be able to make a run for
• 10:49
  Speaker 1: a president, as is the case here, because in Russia
• 10:51
  Speaker 1: to Mexico billionaires are so hated in those countries. That
• 10:56
  Speaker 1: is a taste of what you're going to get when
• 10:58
  Speaker 1: you read a very interesting new book, The Rise and
• 11:01
  Speaker 1: Fall of Nations, Forces of Change in the Post Crisis
• 11:04
  Speaker 1: World by Rouchier Charmer, Rochier says, you can't talk about
• 11:06
  Speaker 1: emerging markets anymore. You have to go country by country.
• 11:10
  Speaker 1: This is taking stock on Bloomberg Radio