Sudarshan Murthy: ‘These Countries Are in Much Better Shape Than They Were 10 Years Back’

Summary

Podcast Summary: The Long View - Sudarshan Murthy: ‘These Countries Are in Much Better Shape Than They Were 10 Years Back’

Introduction

In the March 25, 2025 episode of The Long View hosted by Dan Lefkovitz of Morningstar, Sudarshan Murthy, co-portfolio manager at GQG Partners, joins the discussion to provide insights into the evolving landscape of emerging markets (EM). With a robust background in global, US, and emerging markets equities, Sudarshan delves into the dynamics shaping today's investment opportunities and challenges in EM.

Guest Introduction and Investment Approach

Dan Lefkovitz introduces Sudarshan Murthy, highlighting his extensive experience and educational background from the National Institute of Technology in India, the Indian Institute of Management, and the Wharton School at the University of Pennsylvania. Sudarshan is responsible for managing GQG’s global, US, and emerging markets strategies alongside Rajeev Jain.

Broad Investment Remit vs. Specialization (01:38 - 04:29)

Sudarshan discusses the advantages of managing a broad investment portfolio across various geographies and sectors. He emphasizes the value of cross-pollination and shared learnings within the team, which enhance their ability to identify high-conviction investment opportunities. Sudarshan states:

“There's so much of cross pollination, so much of learning that happens... the learning curve probably is somewhat steeper. But once you get that going as a team, it can be incredibly powerful.”
[01:38]

Emerging Markets Underperformance and Historical Cycles (04:29 - 10:21)

Addressing the prolonged underperformance of EM equities compared to the US, Sudarshan attributes this to cyclical market behaviors—bull and bear cycles influenced by regulatory changes and economic reforms. He explains:

“Good times produce bad decisions and that creates bad outcomes and tough times create good behavior that leads to good outcomes.”
[05:03]

Key factors include post-Asian financial crisis regulatory strengthening and significant economic reforms in countries like India and Brazil since 2010. Sudarshan highlights India's introduction of the bankruptcy law and real estate reform in 2016 as pivotal steps enhancing the stability and attractiveness of its markets.

Impact of US Interest Rates on Emerging Markets (10:21 - 12:37)

Sudarshan challenges the traditional view that EM performance is tightly coupled with US interest rates. He posits that EM companies are adept at navigating higher interest rates, which are prevalent in their economies. He notes:

“Any company in emerging markets that has gone through cycles learns how to adapt to higher interest rates... they are used to dealing with complex situations.”
[10:21]

US Trade Policy and Tariffs (12:37 - 14:32)

Discussing US trade policies, Sudarshan explains that many EM companies have a strong domestic focus, reducing their vulnerability to international trade tensions. However, he cautions investors to be wary of Chinese companies heavily exposed to Western technology.

Currency Strength and Investment Returns (14:32 - 16:34)

The strong US dollar has historically diminished returns for investors holding foreign equities. Sudarshan acknowledges this but suggests that currency cycles may lead to mean reversion, potentially reversing the current trend.

Catalysts Turning the Tides in Emerging Markets (16:34 - 20:28)

Sudarshan identifies several catalysts that are enhancing the attractiveness of EM:

• Economic Reforms: Ongoing liberalization and regulatory improvements.
• Market Growth: Large market caps, particularly India’s nearly $5 trillion market.
• Diversification Potential: EM investments offer true diversification compared to US-centric portfolios.

He emphasizes India’s substantial earnings growth and the role of the private sector in delivering public goods, enhancing investment prospects.

Focus on Specific Markets: India, Indonesia, Brazil, and China

1. India (18:04 - 21:43)

   • Earnings Growth: Comparable to the US in the long term.
   • Sector Opportunities: Banking, utilities, and infrastructure, bolstered by government initiatives.
   • Regulatory Improvements: Reduction in red tape, fostering entrepreneurship and private sector participation.
   • Notable Quote:

     “Red tape to red carpet... competition among states to attract private sector investments.”
     [20:37]

2. Indonesia (21:43 - 23:57)

   • Banking Sector: Highly consolidated with top banks showing attractive valuations and robust returns on equity.
   • Regulatory Strength: Lessons from the Asian financial crisis have led to a stronger banking system.

3. Brazil (23:57 - 26:17)

   • Resilient Companies: Well-run banks and strong commodity sectors.
   • Government Reforms: Enhanced institutional checks and balances, increasing investor confidence.
   • Market Sentiment: Despite recent underperformance, long-term fundamentals remain strong.

4. China (14:32 - 16:34, 26:17 - 18:04)

   • Economic Growth: Remarkable GDP growth and poverty reduction, yet EM investment in China has lagged due to unsustainable earnings growth.
   • Performance Metrics: Since 1993, MSCI China Index has underperformed with less than 2% annualized returns.
   • Investment Stance: GQG Partners remains underweight in China, focusing instead on high-conviction opportunities globally.

Investor Sentiment and Market Perceptions (26:17 - 27:13)

Sudarshan addresses the current negative sentiment towards EM, likening it to past market sentiments during the US financial crisis and the pandemic energy sector downturn. He argues that broad negative generalizations overlook the nuanced improvements and reforms in EM, presenting investment opportunities.

Developed Markets and Emerging Market Attributes (27:13 - 29:32)

Highlighting the blurring lines between developed and emerging markets, Sudarshan points out that some developed markets exhibit characteristics traditionally associated with EM, such as hype and volatility cycles—exemplified by the current generative AI boom. He anticipates that while generative AI will eventually revolutionize industries, short-term skepticism may create temporary market air pockets.

Conclusion and Final Thoughts

Sudarshan reiterates GQG’s strategy of identifying the best 50 companies globally to build a high-conviction portfolio, remaining flexible and responsive to new opportunities. He emphasizes the resilience and growth potential of EM markets, bolstered by ongoing reforms and strong economic fundamentals.

“We are trying to see which are the best 50 companies that we can own that's going to deliver high, single digit, low double digit analyzed over the next five years.”
[16:50]

Notable Quotes with Timestamps

• Cross-Pollination and Learning:

  “There's so much of cross pollination, so much of learning that happens...”
  [01:38]

• Regulatory Reforms in India:

  “The bankruptcy law kind of changes that. Now banks know that they can take management to court in a span of a few months.”
  [08:48]

• Red Tape to Red Carpet:

  “Red tape... to red carpet... competition among states to attract private sector investments.”
  [20:37]

• Dividend on EM Investment Strategy:

  “We want to make it diversified by high conviction.”
  [16:50]

Key Takeaways

• Emerging Markets Evolution: Significant improvements in regulatory frameworks and economic reforms have enhanced the investment landscape in EM countries like India, Indonesia, and Brazil.

• Investment Strategy: A focus on earnings growth and high-conviction portfolios allows for selective investment in the best-performing companies across diverse geographies.

• Market Sentiment: Negative sentiment towards EM is often superficial, failing to account for underlying improvements and long-term growth potential.

• Diversification Benefits: EM investments provide essential diversification away from US-centric portfolios, tapping into large and growing domestic markets.

Final Thoughts

Sudarshan Murthy’s insights highlight a cautiously optimistic outlook on emerging markets, underscored by robust economic reforms and evolving market dynamics. Investors are encouraged to look beyond prevailing sentiments and recognize the substantial growth opportunities that EM markets offer in the long term.

Transcript

[Jackson Financial]

At Jackson, we've created a digital retirement planning experience with you in mind. Visit Jackson.com to explore our easy to understand resources and user friendly tools that are designed to enable financial professionals and clients to plan a path to financial freedom. Jackson is short for Jackson Financial, Inc. Jackson National Life Insurance Co. Lansing, Michigan and Jackson National Life Insurance Co. Of New York, Purchase, New York.

[Disclosure Announcer]

Please stay tuned for important disclosure information at the conclusion of this episode.

[Dan Lefkovitz]

Hi, welcome to the Longview. I'm Dan Lefkovitz, strategist for Morningstar Indexes. Our guest this week is Sudarshan Murthy from GTG Partners. Sudarshan is a co portfolio Manager on all GQG investment strategies which include global equities, US equities and emerging markets. Before joining GQG in 2016, Sudarshan worked as an Asian Equities Analyst for Matthews International and he was also a sell side researcher at Sanford Burns. Before his investment career, Sudarshan worked in IT services at Infosys Technologies and in banking. He holds degrees from the National Institute of Technology in India, the Indian Institute of Management and the Wharton School at the University of Pennsylvania. Sudarshan, thank you so much for joining us on the long view.

[Sudarshan Murthy]

Thank you for having me here.

[Dan Lefkovitz]

Absolutely. So you are a co portfolio manager on all of GQG's investment strategies with Rajeev Jain and others on the team. You manage global equities in US and emerging markets. Maybe you can talk a little bit about pros and cons of having such a broad investment remit versus specializing as you've done in previous roles in a particular region or particular market.

[Sudarshan Murthy]

Yeah, if you look at our investment approach, we have the same team following the same process across our strategies. And really what we are trying to do is we are trying to look for the best 50 companies that we can own, give or take, and build a high conviction yet diversified portfolio. Now the way we go about this is we are looking at when we are underwriting each business, we're looking at what's going to be the underlying earnings growth that we can see from this company over the next five years. So we forecast our earnings in US Dollar terms for the next five years. And it doesn't have to be precise. If someone tells you that they forecast EPS to the second decimal point, the real world is too messy. What's more important is to be approximately right than trying to be precisely wrong. So if you get it directionally right, whether something is a 10% grower versus a 20% grower, that's more important. Now we forecast these earnings in US dollar terms for the next five years. We have a view on earnings beyond those five years because that will determine the multiple that an investor pay or five years out. And then we discount all of this at a constant 7% rate. And that tells us whether a business is attractively valued or not. Now to your question. Same team working across different geographies, different sectors, we see a lot of value in that. There's so much of cross pollination, so much of learning that happens and actually I witnessed that at the earliest stage when I joined gqg. One of the first businesses that I built conviction was this Indian telecom company and it is a conglomerate, they're building out their mobile network. And what really helped me build conviction unlike previously was because I'd also looked at some of the US businesses, similar businesses. So there's this learning that I was able to appreciate that hey, I'm getting this. The fact that they're building this awesome backend backhaul is actually a big deal. It's going to be a differentiating factor versus competition. So that aha moment looking at when we're looking at the business, I think it's an example where it got triggered because we are looking at a global business that was doing something similar and we able to use some of the learnings. When I look at this Indian company now there are as with everything else, the choices that you make comes with positives and negatives, right? Yeah, there's always trade offs involved and here the trade off is. The learning curve probably is somewhat steeper. But once you get that going as a team, it can be incredibly powerful.

[Dan Lefkovitz]

So I wanted to turn to emerging markets equities. Although maybe later in the conversation we can talk about the US and other markets. But GQG just published a really interesting paper called Turning Tides in Emerging Markets and there's some great historical perspective. You look at various cycles of emerging markets performance. But you also note that we've been in a prolonged period of underperformance for emerging markets equities. 2024 was another down year for emerging markets relative to the us. How do you explain the disappointing returns for emerging markets extending back so long decade plus now?

[Sudarshan Murthy]

Yeah, look these things, they go in cycles and as you pointed out, if one takes a really long term use, let's say since the late 80s, you can actually break it down to faces. When emerging markets like a bull market did well and those are then followed with a bear market. We often joke that good times lead to bad behavior and that produces Bad outcomes and tough times create good behavior that leads to good outcomes. That explains it. But look, if you look at it late 80s, early 90s bull market in EM, what triggered it? One of the reasons is that both India and China realized that they had to liberal. China probably did more than India and that benefited them. Over the next 30 plus years India went in for a partial liberalization which had its ups and downs at the time. But then if you look at the late 90s there were some excesses in EM and that led to challenges. But then that also set the ground for a better regulatory framework in em. I do feel that the Asian financial crisis was a wake up call to many of the regulators, be it the banking regulator in Thailand or Indonesia and across various countries. And the dict tighten norms and make it more conservative. And you can see that in the long term Indonesian NPL numbers was around the 30% during the Asian financial crisis, if not higher. And that over time has continued to come down. Pre Covid it was about mid single digits. And those kind of improvements happen because the regulators are being very proactive on taking steps. Now the bear market of the late 90s did set the groundwork for the bull market. That happened right. And at the same time you had the dot com crisis in the us So I think so you had a situation where the US stock market was perceived as somewhat not that great an investment and EM did well. And in that particular phase, the 2001-2010 timeframe, China was clearly the engine, it did a large part of the global improvements. But your question, 2010 onwards. I think there are two aspects to it. One is US exceptionalism post GFC has been helped by low interest rates and EM has had its challenges for the last 15 years. Goes back to what I was mentioning earlier. Good times produces bad decisions and then creates bad outcomes and then tough situations create good behavior and sets up the stage for good outcomes. At the same time, if you look at countries like India, Brazil, they made some significant reforms that's going to help them for the long term. I'll give the example of India. Before jumping to Brazil, India introduced the bankruptcy law and the real estate reform both in the 2016 timeframe. The bankruptcy law is actually a big deal because I remember I started my career as a lending officer in an Indian Bank 25 years ago and the joke at that time my bosses would tell me is that when you're lending to a business, the management comes in a shabby Ambassador car which is one of those old fashioned cars that you would have at the time?

[Dan Lefkovitz]

Yes.

[Sudarshan Murthy]

But when they come to renegotiate the loan, they're coming in a nice Mercedes car. So. But that was true, you know, that kind of behavior. I mean, there's an element of truth behind it. And the reason for that is banks did not have the power to enforce terms on management that was defaulting. You could go to court, but that would take years, if not decades. The bankruptcy law kind of changes that. Now banks know that they can take management to court in a span of a few months. They can take the assets away from the management and that creates a virtuous cycle. It promotes good behavior on all the stakeholders. And you can see that over time the banking sector in India is much better than what it was before. You see a similar dynamic even in Brazil. For example, the SOE reform law, again introduced somewhere around 2016, that acts as a deterrent for executives in SOEs. They realize that if they commit bad behavior, they can literally go to jail. And that's a wonderful deterrent.

[Dan Lefkovitz]

Well, I want to come back to both India and Brazil later, but I did want to ask you, you mentioned interest rates, U.S. interest rates, and there used to be this perception that, you know, the performance of EM equities and debt were very closely tied to US interest rates. When, you know, US interest rates were cut, that was good for em, and when they were tightened, that was bad. What's your view on the relationship?

[Sudarshan Murthy]

Look, I think any company in emerging markets that has gone through cycles learns how to adapt to higher interest rates. And generally these economies run at higher interest rates. So going from let's say a 8% to a 12% is not as bad as when someone goes from a 1% to a 5%, the impact is a lot higher. And when we talk to management of companies in these countries, you realize that they had to be a lot more sophisticated in navigating this. So, for example, what does that mean? The systems are built such that pricing decisions can be taken much faster supply chain, they're able to manage changing prices at a faster rate. Right. It's stable stakes for them.

[Dan Lefkovitz]

Yeah.

[Sudarshan Murthy]

The other part of your question is in an increasingly de globalized world, in so many ways, countries that have a large domestic market can be attractive because they are somewhat insulated from everything else that happens. Those companies are somewhat insulated from what's happening elsewhere.

[Dan Lefkovitz]

Since it's so topical, I wanted to ask you about tariffs, US Trade policy, whether they are influencing your team's positioning at all on em or really more broadly.

[Sudarshan Murthy]

Yeah. If you look at our holdings over time. Many of these companies tend to be focused on the domestic market. Countries like Indonesia, India, Brazil, these are large countries with a rapidly growing middle class, so they have a strong domestic component. In fact, one of the things that I do feel that investors had to be careful is it's on companies that are exposed to, let's say, Chinese company that's exposed to Western technology. So you just need to be a lot more careful on that.

[Dan Lefkovitz]

Okay. And what about the US Dollar? The US dollar has been strong for maybe a decade plus and its strength has really diminished the returns for equ. US investors holding foreign equities. So I wonder how currency broadly and the dollar strength in particular fits into your sort of investment thinking.

[Sudarshan Murthy]

Yeah, so when we're underwriting the businesses, we are forecasting our earnings in US dollar terms. So that's where we make the adjustments. But again, I'm not an expert in currency, but I do feel that these things happen in cycles. So maybe one can build a case for a mean reversion here for the dollar strength.

[Dan Lefkovitz]

So I just wanted to make sure that you mentioned all of the different factors that you see as helping to turn the tides in emerging markets. You definitely talked about economic reforms and some of the steps that have been taken in various markets. Were there other factors that you think are kind of catalysts for emerging markets?

[Sudarshan Murthy]

Yeah, you mentioned some of the reforms, but these are now large markets. India's nearly a $5 trillion market cap. And I do feel that increasingly as these companies in these countries continue to grow, because we are seeing earnings growth, we are seeing top line growth in the businesses here, I do feel that it becomes increasingly hard for investors to ignore. The second aspect is an investor is investing in, let's say US tech financial sector, which tends to in many ways act in line with tech. The true diversification probably comes from EM investments and one could argue that this diversification going forward will continue to increase.

[Dan Lefkovitz]

Okay, so you've cited India, Indonesia and Brazil in particular as markets where you're finding a lot of opportunity and where you feel like there's a really constructive sort of backdrop. What about China? Chinese equities did have a great year in 2024. And you know, our listeners will probably have heard about the stimulus packages. How are you and the GQG team approaching the opportunity in China?

[Sudarshan Murthy]

What China has accomplished as a country is fully remarkable. The kind of growth rates, GDP growth rates that they sustained for several decades now, ensuring that millions of people are out of poverty and the middle class lifestyle is truly Remarkable. But as investors, if one had invested for the long term in Chinese stock market, you'd be hard pressed to emit returns. I was looking at some numbers just before our conversation. If you look at since early 93, the MSCI China Index is down more than 20% on nominal terms. And of course if you include dividends and so on, you are still making a annualized return less than 2% per year. Now why is that the case? Because clearly China has produced such world class companies in so many areas. The key reason is that earnings growth has not been sustainable. There's been lack of earnings growth that you find over the long term in China when you compare that to the US or India or Indonesia for that matter. So it goes back to what I mentioned earlier, that we follow earnings growth because our opinion over the long term market cap goes in line with earnings growth. Not in the short term. Short term there'll be like, there'll be sentiment, there'll be re rating derating, all those things happen. But over the long term earnings growth is what drives market cap. And for us the challenge has been that we have seen earnings growth hard to come by in China in many other companies, which also probably explains the long term stock market performance. In the time period that I said since early 93, the S&P has compounded more than 10% India and Indonesia component at anywhere from 8 to 9% in US dollar terms. And that's because avoiding scrutiny.

[Dan Lefkovitz]

A lot of investors these days, you know, use the term uninvestable in relation to China. They just avoid the market. And we see a lot of investment strategies in Morningstar's database these days with X China in them. But, but GQG doesn't go that far, right? You don't subscribe to the China's uninvestable.

[Sudarshan Murthy]

View being underweight China in a premium strategy, we're significantly underweight China. So for us the thinking is really let's look at the best 50 companies that we can own and then build a high conviction portfolio. But at the same time we want to make it diversified by high conviction. Top 10 names would be anywhere from around 40% of the portfolio. It's meaningful. So what that means is that we are benchmark aware, but we don't let the benchmark driver decision making. So end of the day it's actually very simple. We're just trying to see which are the best 50 companies that we can own that's going to deliver high, single digit, low double digit analyzed over the next five years. It doesn't mean that we'll own these companies for the next five years because that's actually a mark of intellectual arrogance that I think I know how the world will look like for the next five years. In that case, we are happy to change the portfolio, upgrade the portfolio tomorrow if I find a better name that we can own. Why the stick to ourselves?

[Dan Lefkovitz]

Okay, well let's talk about India because it is a market where you are finding out a lot of opportunity. It's an equity market that's produced some really strong returns going back a long time now. Although those returns have been diminished by the currency effects for US Dollar a lot of European investors, the rupee has weakened so that's diminished return. But talk a little bit about what you're seeing in India. There has been a correction lately and the Indian market as of this recording in early March has seen some losses.

[Sudarshan Murthy]

For the long term, India's delivered earnings growth that's comparable to what one sees in the us Slightly lower but comparable in US dollar terms. Again over the long term. We go back from early 93 to now. You are looking at a market that's compounded in US dollar terms anywhere from 8 to 9%. Now the areas that we are excited about is the banking sector is doing well again. You can take a long term view on that sector. You can take a 10 year view. And these are well run banks. In fact most places in em the banks are actively well run, be it Brazil, be it India, China because they're used to dealing with complex situations. We're also very excited about the operating set in utilities and infrastructure space in India. The Modi government's emphasis over the last 10 plus years on building out public goods has a multiplier effect and there are a few companies that both in the private sector and the state owned sector that can have a meaningful impact in this transition. Right. Because remember India is still moving from a low income to a middle income country. So there's a lot of opportunities for growth in power sector and so on.

[Jackson Financial]

At Jackson we've created a digital retirement planning experience with you in mind. Visit Jackson.com to explore our easy to understand resources and user friendly tools that are designed to enable financial professionals and clients to plan a path to financial freedom. Jackson is short for Jackson Financial Incorporated, Jackson National Life Insurance Co. Lansing, Michigan and Jackson National Life Insurance Co. Of New York, Purchase, New York.

[Dan Lefkovitz]

There was this quote from the paper the Turning Tides in Emerging Markets paper that I underlined red tape to red carpet. Can you explain what that means?

[Sudarshan Murthy]

Yes, red tape. There are A lot more hurdles for entrepreneurship in India. And it's been a long journey where India has liberalized its economy since the early 90s and reduced regulation, and that continues even under the current administration, where there is a widespread consensus that the private sector has a key role to play in delivering goods. And it doesn't matter which part of this political spectrum you are. In India, as the middle class becomes more numerous, politicians realize that one of the better ways for them to continue to win elections is to deliver on public goods. And part of that is to create jobs. Part of that is to ensure that there's electricity, water and those kind of things. And they're leveraging the private sector in some ways. There's a competition among the various states in India because it's a very decentralized, etc. Competition among them to roll out the red carpet to attract private sector investments.

[Dan Lefkovitz]

You have another paper called Navigating the Herd Mentality in Indian equities and you talk about how sentiment sort of waxes and wanes and flows over time, have been quite dramatic in their ups and downs. Do you think that's what's happening now with the Indian equity sell off?

[Sudarshan Murthy]

There's some element of that. Part of the reason why we wrote that paper is when you look at the data, we found that surprisingly, foreign investors buying and selling decisions many times act as a contrarian signal. Now, if I had to speculate, it's probably because these investors tend to traffic in similar names, similar businesses, be it tech or consumer staples or banks, whereas they tend to be underweight in utilities and industrials. So that could be one element. But onto a larger question. As investors, there are clearly very good investors in the US and Europe who invest in India. But rather than let their decisions have an impact, speculate that for us that we look at earnings growth and let that guide our decision making.

[Dan Lefkovitz]

Okay, well, we could focus an entire episode just on India, but I also wanted to get to Indonesia and Brazil because those are probably markets that maybe we've heard less about lately. Indonesia, obviously a huge population and natural resources rich. There was a leadership transition recently. What do you see as the opportunity there?

[Sudarshan Murthy]

Some of the banks in Indonesia, the regulatory in Indonesia, as I was pointing out, they clearly learned their lessons from the Asian financial crisis and subsequently the system has become a lot stronger and more robust. Now, Indonesian banking sector, it's very consolidated. Top four banks account for more than half the nation's assets. And these are. They're at attractive valuations or businesses that should be anywhere from high teen to 20% plus kind of ROEs and should grow probably high single digit, low double digit annualized.

[Dan Lefkovitz]

In Brazil, it was one of the world's worst performing equity markets last year. There's been fiscal challenges, political problems going back a number of years. What do you see from Brazil that you like Brazil?

[Sudarshan Murthy]

Clearly the market were somewhat concerned with some of the comments made by members of the President Lula's government and you could see that even in the currency. But again, Brazil, when you look at the banking sector somewhat similar to Indonesia, the private banks are consolidated, very well run, high margins and available at very attractive valuations. Then as you pointed out, Brazil is also blessed with commodities and there are some pretty strong companies in those areas that are blessed with some very high quality resources. And the official aspect in Brazil is that the institutions have evolved over the past 10 plus years and there are a lot more checks and balances in their government. In the system, especially foreign investors give credit.

[Dan Lefkovitz]

And from a macro perspective, you wrote that the economy has surprised on the upside post pandemic.

[Sudarshan Murthy]

Yeah, I mean, look, Brazilian companies tend to be very resilient. They can cope with high interest rates. In fact, when I remember talking to a Brazilian bank CEO when the Silicon Valley bank issues that are happening in the US which was essentially asset liability mismatch in duration, and this person was joking that their interns would have found this out. Obviously I was joking because in a place like Brazil, you can't make those mistakes. It's a very tough unfogging environment for those kind of mistakes.

[Dan Lefkovitz]

You have an interesting chart showing the decline in foreign ownership of Brazilian equities. Can you talk about that?

[Sudarshan Murthy]

Somewhat similar to what we're discussing about India. But Foreign Minister sentiment in Brazil is on the lower side, as the chart shows below, the long term average in terms of their holdings.

[Dan Lefkovitz]

Yeah. There was an interesting insight about sentiment overall towards emerging markets that you made that you think that the negative sentiment now globally towards emerging markets is similar to what we saw towards the US during the financial crisis and towards the energy sector during the pandemic. Can you talk about that?

[Sudarshan Murthy]

Yes. See, anytime investors start putting a blanket statement, I do feel that creates opportunities because you kind of, if you paint with broad brush strokes, one misses out the nuances. Now these countries are in a much better shape than what they were 10 years back, 15 years back, reforms have continued, they are larger, they're more meaningful in the global context. So I do feel that some of the negativity is somewhat misplaced.

[Dan Lefkovitz]

You also make the point that some developed markets These days are exhibiting some of the negative attributes that are traditionally associated with emerging markets.

[Sudarshan Murthy]

So I think that some of the excitement, hype and fear that you see about generative AI are things that you typically associate in an EM context. This is a hype cycle, then followed by a panic.

[Dan Lefkovitz]

Yeah, you talk about how you're still positive on the US given all the high quality US companies, but you do see some clouds on the horizon. What are those clouds?

[Sudarshan Murthy]

One is as with any new technology and generic AI being one, there tends to be like a typical hype cycle and then people start getting worried. And that's natural. When you look at the iPhone when it was first launched, at that time it was just a better Nokia phone. The true power of the iPhone emerged couple of years later when you had apps like Uber, Lyft and so on. Right. So any new disruptive technology, it takes time. So just like for the iPhone, mobile, native business models took a while to emerge. It's likely that in generating AI AI, native business models will take some time to emerge. But at the same time when we talk to companies and large companies and so on, they're still talking about how they're going to use AI to cut costs, be it programming, salesforce, call centers. But very few companies are talking about how they can use AI to generate revenues. But that'll happen and it's just a question of time. There's nothing wrong with that. And from what we can tell, five years from now, it's likely that generative AI will have a big impact on the world. But there could be air pockets over the next one to two years.

[Dan Lefkovitz]

Do you feel like we're seeing an air pocket now?

[Sudarshan Murthy]

It is right when you look at investors reaction after deep sea came people what how much deep seats have spent. But it was more like they were able to show productivity improvements of a significant magnitude. And will that then impact the end demand for semis?

[Dan Lefkovitz]

Sudarshan, these have been great insights. Thank you so much for joining us. In the long view, of course.

[Sudarshan Murthy]

Thank you for having me here.

[Dan Lefkovitz]

Thank you for joining us on the Longview. If you could please take a moment to subscribe to and rate the podcast on Apple, Spotify or wherever you get your podcasts you can follow on socials, dan Lefkovitz on LinkedIn, George Cassidy is our engineer for the podcast and Carrie Greshik produces the show Notes each week. Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email [e-mail] until next time. Thanks for joining us.

[Disclosure Announcer]

This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording and are subject to change without notice. The view, views and opinions of guests on this program are not necessarily those of Morningstar, Inc. And its affiliates, which together we refer to as Morningstar. Morningstar is not affiliated with guests or their business affiliates. Unless otherwise stated, Morningstar does not guarantee the accuracy or the completeness of the data presented herein. This recording is for informational purposes only and the information, data analysis or opinion it includes or further use should not be considered investment or tax advice and therefore is not an offer to buy or sell a security. Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analyses or opinions for their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile. Before making any investment decision. Please consult a tax and or financial professional for advice specific to your individual circumstances.

[Sudarshan Murthy]

Advisors and financial Experts this one's for you. Registration is now open for the Morningstar Investment Conference on June 25th and 26th. Join thousands of your peers in Chicago for two days packed with cutting edge research, expert insights and thorough analysis. Advisors can even attend for free and earn CE credits. Learn more about the MIC [e-mail] events. MIC.