← The Master Investor Podcast with Wilfred Frost
The Master Investor Podcast with Wilfred Frost
Is the US Market Finally Peaking? Ruchir Sharma’s Take
00:46:41
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- [00:00]
A
So much of investing, as you know, wealth, is about expectations. Expectations of America got too high, expectations of the rest of the world were too low. And I think that that expectations gap has been closing for the last year and I think is likely to keep closing for the next three, four, five years. Typically, international outperformance is associated with dollar weakness. And my point is that once the dollar bear market starts, it tends to last for about five to seven years. So I think this combination is likely to lead to America's stock market underperforming the rest of the world for the next few years. And also because there's a recognition that the rest of the world, whether it's China or even the likes of Korea or Taiwan, that these countries also have technological prowess. It's not just America which has that. The Fed has missed its inflation target of 2% on the core PCE for 56 months in a row. And I don't see any justification for interest rates cuts. But if they do cut, which they probably will because of the political pressure, I think that that is not good for the US Dollar.
- [01:17]
B
Welcome to the Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders and politicians in giving you, our listeners, the edge. The Master Investor Podcast is sponsored by BNY Investments, Elseg and Interactive Brokers. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice or a personal recommendation. More on that in the show notes. My guest today, Ruchir Sharma, is the head of Rockefeller International and the founder and CIO of Breakout Capital. Previously he was the Head of Emerging Markets at Morgan Stanley Investment Management, a role he took in 2003 and added to it the broader title of Chief market strategist from 2016. He left Morgan Stanley in 2022 and has become even more prolific and successful with his writing since that departure. But Breakout, nations, the Rise and Fall of Nations, Democracy on the Road, what Went Wrong with Capitalism? Amongst some of his best selling books. Rusheer, so great to see you again. Thanks so much for joining me.
- [02:36]
A
Thanks Wolf. Good to be back with you after all the interviews we have done in the past with cnbc.
- [02:42]
B
Exactly. And great to have a chance for a longer form discussion. And just remind me when Breakout was founded. Is that more recent than your move to Rockefeller, by the way? We had Greg Fleming on, of course, the CEO of Rockefeller. But was it at the same time or did one follow the other at the same time? Wilf?
- [03:04]
A
Because after a 25 year stint at Morgan Stanley. I thought it was time to move on and I both wanted to create my own firm, which is what Breakout Capital is an investment firm focused on emerging markets in particular, but really global investing at the same time to carry on my association with Greg because Greg and I'd worked together at Morgan Stanley where he ran both the asset management and the wealth management business. And so he and I decided to associate with each other, with me sort of coming in as chairman of Rockefeller International. So both these things happened in parallel and that's I think always been my life mantra. Live life in parallel. So it happened with my writing and my, and my investing. Now it happens even from a career perspective with both Breakout Capital and with my association with Rockefeller.
- [03:58]
B
Well, I refer people back to our episode with Greg. Well, well worth checking it out. I also refer people back to the bonus episode we did with Ruchir focused on his views on the latest in the Middle East. If you haven't listened to that, Rashee, I wanted to start by talking about the broad topic of US Exceptionalism which, which you've written a lot about in recent years. And I guess the first question would be to touch on US growth outperformance in, in recent years as opposed to more broadly this, this century. And a lot of people point to the, to the tech innovation, most recently AI. Is that the core reason in recent years in the same way that it was in, in recent decades for US outperformance on the growth side?
- [04:44]
A
Yes. Like the 1990s was the last period where the US outperformed the world very significantly. Something similar happened over the last 10 to 15 years. You know, like I wrote my first book back in 2012 called Breakout Nations. That book was supposed to be an economic travelog of mainly emerging markets. But I ended that book back in 2012 really by saying that the true emerging nation in the world was America, not the BRICs and all which which were being hyped up back then. And I always regret that I wish I had invested my money accordingly rather than only having spoken about it in a book. But I'd say that that was really. I focused on the technical, sorry like the technological prowess of America back then and how that was likely to lead to America's resurgence when people were very negative on America. Remember that back in 201011 when I was writing that book, the S and P had downgraded America and it appeared as if America coming out of the global financial crisis was really limping along and the decade was widely thought to be the BRIC decade back then. And then that reversed very quickly in the subsequent years. But what happens with all these trends, as you know, Wilf, is that, and this is what even classifies as a bubble, that it's a good story, which goes too far. And I think that's what happened in America too, which is that you got this incredible period of outperformance. A lot of it, as you said, was led by tech. And the huge Silicon Valley's prowess came to be recognized by everybody with so much capital coming in. And then you got the AI wave where America was seen to be absolutely at the forefront of it all. This attracted massive amounts of capital to America and still does. But then things become overvalued, over owned. And that's what we saw in America as well, which is that at the end of 2024, America's weight in the global equity indices was approaching 70%. That's just staggering because America's weight in the global economy is still under 30%, but its weight in the global equity benchmarks was getting to at cross, 65% was approaching 70%. And the whole world just wanted to say that we just want to own America. Everything else is irrelevant. And my point was that this feels like a bubble. The fact that if everyone is sort of so excited by the same theme. And so I wrote that piece then saying that this American exceptionalism, which even I believed in, was likely to fade because there's just no way that the 70% of the world's capital should be concentrated in one country. And this decade also, about 80% of all investments in the stock market around the world had gone into just America. So this was just very exceptional. So, yes, that was a big reason for America's outperformance.
- [08:00]
B
And obviously you called that at the end of 2024 and last year, we did see international markets outperform US markets. I guess my question to follow up, though, is the extent to which that relatively brief and relatively small rotation into international markets is finished, or if it's just the beginning and paired with it, the US still rose last year. It's not like we saw a bubble burst by stretch of the imagination. So where are we on that process of unwinding? I think you said the overvaluation, the overinvestment that happened.
- [08:36]
A
Right. I think that my stronger conviction is the fact that I feel that this international market's outperforming is still in its early stages. Now, if you just step back in history, what you see here, Wilf, is this, that the American Market over time tends to do very well. But after a very strong decade, like in the 2000s, like in the 1960s, America tends to underperform for a few years after that. So that just sort of working away those overvaluation, it doesn't have to be a decline or a burst. But the 2000s was a very instructive decade, which is that the S&P 500 didn't go anyway, really. I mean, the returns were relatively flat that decade for the S&P 500, but the rest of the world's markets did very well and caught a bit. Now this doesn't happen for no reason. It happens for a reason. And I think that what you see is the fact that the rest of the world, the earnings growth is picking up much more significantly after lagging that of America. If you look at the total shareholder return, buybacks plus dividend yields, the rest of the world, in fact is giving you more than America is today, which is a big change from what used to be the case. And of course the starting point, valuation is still much cheaper for the rest of the world. And the dollar is a very important angle here that typically international outperformance is associated with dollar weakness. And my point is that once the dollar bear market starts, it tends to last for about five to seven years. Again something which happened in the 1970s, something which happened in the late 1980s, and again something which happened in the 2000s. So I think this combination is likely to lead to America's stock market underperforming the rest of the world for the next few years. And also because there's a recognition that the rest of the world, whether it's China or even the likes of Korea or Taiwan, that these countries also have technological prowess. It's not just America which has that. So there's a catch up going on in the rest of the world. And I think that even in Europe, where things were so gloomy, so pessimistic and the base was so low, you know, the European banks have been quietly outperforming. So so much of investing, as you know, wealth, is about expectations. Expectations of America got too high, expectations of the rest of the world were too low. And I think that that expectations gap is closing in the coming. Has been closing for the last year and I think is likely to keep closing for the next three, four, five years.
- [11:30]
B
This episode of the Master Investor podcast with Wilfred Frost is sponsored by BNY Investments, a trusted partner for many delivering financial sol to investors and institutions worldwide. This sponsorship does not constitute financial advice. Let's Come on, you mentioned the dollar there as being critical to all of this, to the Fed outlook. How many, obviously this last few days might change perspectives with oil prices, but how many cuts do you think there should be this year and how many do you think there will be?
- [12:08]
A
I don't see the Fed cutting interest rates really anytime soon. I think there's no justification for the Fed to be cutting interest rates. And I think that the reason is this, which is that the Fed has missed its inflation target of 2% on the core PCE for 56 months in a row, and there is no sign that the inflation is returning back to 2%. The core PCE, which the Fed tracks, is still very much closer to 3% rather than 2%. So I don't see any fundamental justification for interest rate cuts. The US Economy is doing fine. It's growing, you know, it's slowed a touch, but it's still growing at 2%. Inflation is closer to 3%. And the financial conditions are so loose, which is that you just look at the financial markets, there's no sign that monetary policy is tight. So I see there's no justification for the Fed to be cutting interest rates. Now, having said that, I think that the political pressure may be such where the Fed may cut interest rates once or twice. And I think that that's a dollar negative because in this environment, to be cutting interest rates when your nominal GDP is growing at 5% or so and the Fed's interest rates are already at 3.5%, I think that is already relatively loose monetary policy. And I don't see any justification for interest rates cuts. But if they do cut, which they probably will because of the political pressure, I think that that is not good for the US dollar.
- [13:47]
B
Clearly that's one of the factors that has driven gold higher. Keen for you to sort of set the scene broadly on gold. Because historically, when we had many conversations over the years, you were a kind of rare gold bug on US business television, where it was all about equities, domestic equities. Since 2022, you've been right on gold. I think I picked up in some of your op eds you've turned maybe not bearish on gold of late, but I saw a word you use was agnostic towards gold. So just set up where you are right now on it.
- [14:22]
A
Yeah, so I always thought that gold and commodities in general deserve a place in the portfolio because of the diversification benefits that they bring. And I felt that gold in particular, something different was happening in 2023. Because if you look at the long history of gold wealth. It tends to move in line with inflation expectations. And also when real interest rates are low or declining, that's when gold does well, because gold doesn't yield anything. So if you don't hold gold, if you're getting paid well from your fixed income instruments, but if those fixed income instruments are not yielding much, that's when you want to hold gold, because you may get a price appreciation, you're not losing much money by putting money in the bank or in fixed income instruments. So that's typically when gold does well. But in 2023, I noticed something different, which is that gold had started to rally even though real interest rates were relatively high. The Fed had raised interest rates quite significantly in 2023. And then what revealed itself was that central banks around the world were buying gold in substantial quantities, triggered by the way the US had imposed sanctions on Russia and seized the assets in 2022 as a reaction to the war in Ukraine. So that gold was beginning to sort of be a diversification asset for central banks in a big way. And so that gave me some confidence that something different was happening. And when an asset begins to behave in a way which is different from what is predicted by macroeconomic models, you need to take note that something different is going on. So that's what made me even more bullish on gold. But what's happened in the last few months is that the price actions become completely parabolic, which is that even though central banks have slowed down a bit, they're still buying gold, but they've slowed down their purchases. Now you have retail investors from China to India, of course, ETFs in the US that people are just piling in everywhere. And they all have their own reasons for buying gold. There's no fundamental reason that they cite. Some people cite geopolitical conflicts, some people cite dollar debasement, some people cite the fact that the Fed may cut interest rates, and so therefore it's good to hold it. And yet the other asset markets don't quite back it up, which is that if really dollar debasement and those kind of things were driving it, then in the last few weeks and months, in fact, the dollar, even though it's weakened over the last 12 months or so, the last few weeks or so, it's been relatively stable, and yet the price of gold has gone up. Similarly, US Bond yields have been relatively stable, so there's no big capital flight happening from the US or something, yet the price of gold keeps going up. So I think that I'M a bit concerned that, going back to my original definition of the fact that there's no good story that too much money can't spoil. And so I think that's what's happened with gold, that too many people have come onto this. And so that's what makes me a bit concerned that gold may be overheated now. Now, like in the long term, I still feel it's a very good diversifier, but I would recommend people to possibly spread their love a bit, which is that if you want more inflation hedges in your portfolio, why don't you buy some more commodities or even some tips which are inflation protected securities? I think that that's the way to buy greater inflation insurance in the portfolio or inflation hedges in the portfolio rather than just buying gold at this stage. I would still have gold, but I just would not be that excited about buying more at this stage, given how parabolic the price action has been in this particular commodity.
- [18:30]
B
Before I get on to some of your takeaways from your books, Rasheer, one final kind of very market focused question. You seem kind of relatively relaxed about the outlook for the US equity market in absolute terms, even if there are relatively more attractive markets. What about what we've seen in private credit in the last few days? Are you still relatively calm on that outlook for the US in absolute terms, even with those, those risks kind of rearing their head again?
- [18:59]
A
No, I think that as far as the credit markets, that's exactly it. That typically it's the credit markets which signal wider problems in the economy and private credit in terms of just the growth which they have seen, like we've done work on this, which is that it's not the level that matters most for debt. It's when the pace of increase is very significant. Because if you make huge amount of loans in a short span of time, you're bound to have made some bad loans. So I think that the. I totally agree that the biggest risk to the US equity market is the private credit market. That if, that if something really blows up there, that could have negative consequences. The only thing which gives me some comfort is the fact that the scale of the private credit markets is still not that big. I mean, if you look at the total increase, it's been very dramatic. But the size of the private credit market is still under $2 trillion, which an economy of nearly $30 trillion is not that big. So therefore I'm less concerned about private credit being a huge systematic risk for the US economy, a systemic risk rather. But I am concerned about the fact that if private credit truly does blow up, it will have negative consequences for the equity market just may not be the same kind of magnitude of what we saw in 2008 or something. But as I said, the scale of the private credit market, the pace of increase is worrying, but the overall market is still not that big to pose, I think a huge headwind for the US Economy.
- [20:56]
B
This episode is sponsored by Interactive Brokers. Building wealth starts with the right broker, and Interactive Brokers helps you reach your goals with powerful tools, global market access, low costs, and unmatched financial strength. That's why the best informed investors choose IBKR. Learn more at ibkr.com masterinvestor. Hi guys, it's Wilf. I hope you're enjoying this episode. Just a quick reminder to please hit follow or subscribe on your podcast or video app so that you never miss an episode. And if you've got time, please, please do give us a five star rating and leave us a comment. It really helps other people find the podcast too. Now back to the episode I wanted to talk Rasheer now about inflation elections. Also about your book, what Went Wrong with Capitalism. But having touched on the Fed and gold prices so often in the last few years, those of us that cross markets and politics have observed how inflation is this kryptonite for all politicians because it reaches everyone in a way that oddly, recessions don't necessarily unless you lose your job. And I think the assessment here with the Tories in the conservatives in 2024, with France recently, with Biden recently is with inflation, it's the incumbent leader that gets smashed almost regardless of what else they've done. You've been doing some analysis and say that only really holds in recent years for developed markets and almost the opposite is true in a lot of emerging markets.
- [22:41]
A
The analysis that I did will first this that there's an anti incumbency wave which is spreading across the developed markets that typically in developed countries the incumbent always had an advantage, right? Which is that if you were the incumbent, you had the media exposure, you had the platform and that your chances of getting reelected used to be relatively high. But in the last decade what we have seen is that about 70% of incumbents have lost their reelection bid across the developed market. So that's a big change which has taken place and it's an issue that I've covered a lot in my book on what went wrong with capitalism. It's partly because people are just not happy with the current economic system that they have and the results that they're getting there's a feeling that the system is rigged against them. And I think that that's the reason you have such a strong anti incumbent wave running through the developed markets. Now in emerging markets, I think that the governance has been somewhat better, that they have got inflation under control in most countries and also the fact that there are that they have learned how to like in places like India, how do you use digitization to more efficiently transfer welfare benefits to people, which is what has helped reverse the anti incumbency in countries such as India. But in places such as the US and the Western world, you have a very strong anti incumbency wave that's running and that's why Trump came to power. And I think for the first time, at least in the last 200 years, the incumbent in the White House has lost three elections in a row. Right. So that's what we have seen, which has not happened before. And I think that that's the danger Trump currently runs. And I think that the widespread expectation building in the US Is that the Republican Party, led by President Trump is going to get a real shellacking in the midterm elections this November. And one thing which has surprised me, if you ask me about President Trump, who's supposed to know his base so well, is that why he's being so sort of indifferent to inflation? Because affordability is a real issue. And in fact, if anything at the margin, whether it's tariffs or this adventurism with geopolitics, both these are at the margin inflationary and also browbeating the Fed to cut interest rates at the margin is inflationary. So I'm just really surprised that he's lost his focus on that because of, I guess those other things matter so much to him. And so I think that he will pay the price for that, or at least every indication is he will pay the price for that in the midterm elections. And inflation is a very big issue. So the two big issues I think that are driving politics in the Western world, including in America. One is a general distrust of government, that the view of governments is very dim in the developed world, that they promise so much and they deliver very little. That is the core problem and a feeling that the system is rigged against the little guy. That I think is the core issue which has fed this anti incumbent wave across the developed world. And the second issue is this idea that politicians in office, including President Trump, appear to be indifferent to inflation or want to be in denial or dismiss it as a concern. And I think that could really come back to bite people like him.
- [26:40]
B
I think the other, of course, interesting observation with President Trump is while the midterms can make his final two years much harder, he personally doesn't have to face another election which maybe alters his priorities a little bit. I guess the follow up to that is the size of the government, because again in your book, what went wrong with capitalism? That becomes a big theme of it. And I guess that the short term, the default, the easiest thing to do for any new government is to use the government's balance sheet. And that your analysis suggests has been an error, even if in the short term it might seem appealing.
- [27:21]
A
Yeah. So I think that as I write in the book, that capitalism did not fail, it was ruined by government. And what do I mean by that? I chart in the book the history of capitalism and show that over time successive governments, whether from the left or the right, have just expanded the footprint of the state. Which is that if you look at the U.S. also, government spending as a share of GDP has gone up in a straight line. 100 years ago, government spending as a share of gdp in countries like the United States used to basically be 3%. It was that the government did the defense, it delivered your mail and then got out of your way. That started to change, understandably so after the 1930s, the Great Depression, the need for a welfare state. And so government spending begins to increase. But the thing is that it's never gone down and it just keeps going up and up and up. And in countries like France and Europe, government spending as a share of GDP, as you know, is approaching 60%. How do you call that a capitalist society? When 60% of GDP is government spending in the US it is now 40% and rising. So I think that that's my point, that the footprint of government keeps increasing. And it's not just government spending, it is the regulatory system that you just keep burdening the system with more and more regulations, thinking that you are helping to control excesses by putting on on more regulations. But as I say that the road to hell is paved with good intentions. You would think you're putting the regulations on to help the average person, but you're making life much more burdensome for the small and mid sized businesses by putting on more regulations because the cost of doing business goes up and the incumbents in fact benefit for more regulation, especially the large ones, because they can absorb the regulatory costs better, which gives them an advantage versus the newcomers. And also because they're able to lobby Washington or London or wherever to shape regulations that favor them. So it's not just government spending, it's the regulatory framework. And also the third vector here, which is that this bailout culture at every level, that at the slightest hint of trouble, everyone thinks that they deserve a bailout and you bail out one entity, then the other entity thinks we need to be bailed out. And this is a problem for financial markets as well, which is what has led to so much retail speculation or even the rich people putting so much money into asset markets. A feeling that, you know what, on the upside, we have all the gains. On the downside, if something goes wrong, the government's going to be there to protect us. So what we call in economic terms, the left tail risk keeps getting taken out, which means that asset prices can keep going up because the upside is free and the downside is protected. So in a way, what you have today is capitalism on the upside and socialism on the downside. And I think that that is a very perverse outcome of capitalism and it's not true capitalism at all.
- [30:47]
B
This episode is brought to you by Elseg, the leading global financial markets, infrastructure data and analytics provider. To learn more about how Elseg connects businesses, investors and markets worldwide, visit elseg.com. Let's touch on a couple of the emerging markets you referenced there. Some of them been doing better on the fundamentals. And India obviously you know very well. Is it fair to say you think that the Indian economy, the underlying is sort of on the right track, perhaps a very exciting track, even if the market itself hasn't. Has it matched that more recently?
- [31:31]
A
Broadly, yeah. You know what, like India, my favorite line on it is that this is a country that consistently disappoints the optimists and the pessimists. Right? So which is that this is the long history of India, it that it appears for a while to be the next China and then it sort of really disappoints and then, you know, people sort of get fed up of it. And foreigners have been selling India in droves over the last year or so. And then it begins to surprise on the upside, because the underlying economy keeps chugging along roughly at a pace of around 6% economic growth or so. So it never quite achieves the Asian economic miracle levels of 10% type economic growth, which it should given its very low base and the incredible entrepreneurial potential in India and everything. India is going for it and yet the underlying growth rate stays at 6% because the base is relatively low. You have enough entrepreneurs out there and the fact is that India has A lot of strengths there, which keeps it going at about 6% or so. So I think that's India's trajectory, but around that you get market cycles. So two years ago it seemed as if the only emerging market worth investing in the world was India. Because if you actually, two years ago, the returns of the Indian stock market in dollar terms was the same as the S&P 500 over practically any time period in the last 50 years. So it was one emerging market which you thought was going toe to toe with the S&P 500. And since then we have seen the Indian market has significantly underperformed the rest of the world over the last 12 months because expectations became very high out of India. But I think that now we are again getting to a phase where, you know, people have almost forgotten about India. As I say, the opposite of love is not hate, it is indifference. That people, yeah, mention India, but no one wants to put money into India. Right. People are like, okay, you know what, whatever. So this could be interesting to re engage with India at that juncture because as I said, the underlying economic trajectory is around 6%. You get market cycles around that where people get very overexcited about India. That never works out because it disappoints the optimists. And then people get manic depressive. Oh, India has again disappointed us. But the underlying trajectory remains pretty stable.
- [34:02]
B
And then going on to China, there's been so many different factors over the long term and one of them has just been corporate governance and government intervention. The extent to which anybody but Westerners in particular are allowed to partake in their growth and the upside. And obviously Covid and the lockdowns accentuated that. We've seen a massive bounce since the peak of that concern. But we're still fairly cheap. We're fairly kind of distrusted as a market as things stand way up. The pros and cons for Chinese equities over the next decade.
- [34:40]
A
Yeah, so a year ago, a big theme of mine is that China is investable. You know, when people were sort of beginning to write China off, that China is uninvestable, you can't touch it in stuff, it's investable. But I think the fundamental problem in China, more than that, I think China is investable in terms of that. I think that even Xi Jinping has changed his attitude towards the private sector after sort of cracking down on the private sector. I think there's a recognition in Beijing then. They need the private sector, particularly when it comes to technology and AI to compete with the US and to be in the AI race, they need the private sector. So I think that the issue of the Chinese authorities not being on your side and possibly going against the private sector, I think that issue has largely been put to rest. And we see that in the change of Xi Jinping and his behavior towards the private sector as well through the course of the past 12 months or so. But the fundamental problem in China, Wilf, is this, that the economy is finding it very hard to grow in the face of two major challenges, which is demographics and debt. That China's population is actually shrinking. No country in the history of economic development has been able to grow at a pace of even 2% on a sustained basis. When your population is shrinking, there are two drivers of economic growth which you know, one is your population growth and one is productivity. So the Chinese government, ambitious, very ambitiously sets itself a growth target of 4.5%. But that is just not grounded in reality because your population is shrinking. If your population is shrinking, you can't have productivity growth on its own of 5% or so. That just doesn't happen. That's not sustainable. So I think that's the fundamental problem. And the second problem is the debt. That Chinese debt today as a share of GDP is approaching 350%. That's higher than even the United States. I'm talking about total debt. Because in China it's so hard to distinguish what's government, what's corporate, what's local government. You put it all together, it's 350%. Even the consumer in China is heavily indebted. So many people say, oh, the Chinese need to do more to boost their consumption, to do more stimulus you can, but the more stimulus you give, the more it just goes into their savings because they're so heavily indebted that they want to save to pay back their debt. So I think the fundamental problem in China is that their debt and demographics are two major challenges. And that's why China cannot sustain a growth rate of 5%. A more realistic growth rate is 2 or 3%. And the reason it's able to even come close to 5% today is in a very damaging way. Why do I say that? China is exporting massive amounts of its surplus to the rest of the world. So in a way it's dumping its very cheap produce to the rest of the world that is finding its way everywhere from Europe to Asia. And it is causing a lot of damage in those economies. It is leading to deindustrialization, whether it's the car industry In Thailand, the textile industry in Indonesia, they're all suffering because of the massive amounts of Chinese dumping which is going on. So China is over investing. It's producing a lot at home. Its domestic economy can't absorb this, so it's dumping that stuff internationally. And really, if it had not been for the battle that many countries are being forced to fight because of the US tariffs, I think that this would be such a big issue because this is what's causing much more damage to economies than I'd say anything else on the trade front.
- [38:44]
B
So just quickly, over a long term view a Chinese equities a buy because they're cheaper and they're now investable or not because of the headline demographic and GDP problems.
- [38:56]
A
I think selectively so I think in China, if you want to buy, you can buy some of the technology companies, which are very good. But I don't feel that the Chinese stock market overall is as exciting as some of the other emerging markets from India to Brazil or even Eastern Europe because the domestic economy is going through a major slowdown given its debt and demographic situation. So I would very much be selective about what I buy in China. It is definitely investable, but you have to focus much more, I'd say, on the technology side. And the domestic demand stuff still appears to be in secular decline.
- [39:40]
B
Foreign, We start to wrap up just a couple of big picture questions from me and you know, the first, I, I can predict the direction of travel, you're going to say for this percentage. But I'm really interested to know the, the, the scale of it, which is, you know, you said at the top, a year or two ago, US got up to sort of 70% of global market cap. I think it's a sort of 65% today. In 10 years, where will that be? Or maybe sooner than that, where will that be? What will be the floor of that percentage in the years ahead?
- [40:14]
A
If I just look back wils to where we were as a percentage of market cap, even 10 years ago, that number was closer to 50%. And that would still mean that the US in terms of its share, I'm talking about the global MSCI index here, where the share is higher than, let's say just pure market cap. The US share in the global economy has sort of steady between 25 to 30%. So even if its share gets up to, gets down to rather 50% of the global MSCI index, that would still be nearly twice its economic weight, which is possibly deserved because of the fact that the US still has some of the greatest companies in the world. So I would say that the US share in the global MSCI index in like 10 years time regresses back to about 50% or so, which is still very big, but a far cry from the 65 odd percent where we are today.
- [41:16]
B
Which country will grow the most that people don't look at enough or that's underpriced?
- [41:21]
A
Well, actually the emerging market weights are still very low. But there are so many countries here, there's a whole list of countries even in emerging markets where their weight in the global emerging market index, which itself is 10, 11% of the global index, that the weight of those countries is less than 1%. So I think that you could spread the love across many countries in Eastern Europe, in Southeast Asia, the Malaysias, the Vietnams, the Polands, all these countries, even countries like Brazil, their weight in the global equity benchmark is barely 1% or so. Right? I mean that's just ridiculously low. I mean, even countries like India. So just, it just seems to me that the US has been such a big glutton for capital that all these countries have been severely under allocated to. And so I've quoted some names here, but the list is long, you know, around the world when you can just allocate capital and then wait for that capital to deliver better returns in the
- [42:26]
B
US And Rashid, just finally, as I flagged you before we spoke, we love ending by asking our guests what is your overriding piece of investment advice for our listeners?
- [42:38]
A
You know, like about investing, I'd say this will fly. One of the key things I've learned over time is to just be a good listener because I just find that one thing I've always said is that for investing, temperament is much more important than analysis. I find so many people who are such great analysts, right? They can analyze a balance sheet, they can work on Excel spreadsheets or do whatever they want, but very few have the temperament. And what do I mean by that? That how do you maintain a calm, how do you maintain a center when the world around you is sort of spinning so hard? Right. Which is that. And how do you have the ability to pull the trigger at the right time? So just I'd say that temperament for me is the most underappreciated skill of investing. And analyzing through spreadsheets and other data is important, but possibly the most overestimated skill of investing.
- [43:37]
B
I love that. And by the way, to listeners that haven't yet checked out our bonus episode released earlier on, on Iran, I think you showed great temperament there in your calmness of analysis of what's been a crazy situation. Rashid, do you also have an overriding piece of career advice? Were you alluding to that as well?
- [43:55]
A
No, I don't know about career advice, but my own, you know, we all, I think, you know, we all have to do what works for us individually. And you know, there are people who are so much more successful than I am and I can keep admiring them. But my key, which I keep reminding to myself will, has been about living life in parallel, which is that when you're on Wall street or when you're on these places, life can get very intoxicating given the amount of money going around and given the power battles which are fought in all these places. And I think that what keeps me personally grounded is to have this alternative career, as in as a writer, you know. So like, I just feel that that gives me a window into a very alternative community. Most of my close friends tend to be writers, authors, and keeps me grounded too. They couldn't care about, you know, you know, how much money I make or whatever. They just sort of, you know, are interacting with you at a very different level, but also balances me out, which is that there are times you get depressed about when your market calls aren't working, things aren't working out. But to know that there's more to life than that and like to live life in parallel by having an alternative or a parallel track, I think is helps me remain calm, even in my core job as an investor.
- [45:17]
B
I think, Rasheer, it's fantastic advice and it certainly resonates with me. It's been such a pleasure catching up with you today after so long. Rasheer Sharma of Breakout Capital, thank you very much.
- [45:29]
A
Thanks both for having me.
- [45:30]
B
And coming up next on the Master Investor Podcast, dropping this coming Friday 13th March, a world exclusive with the US Treasury Secretary Scott Besant. So if you haven't yet hit follow or subscribe, please do so that you get that episode automatically. Scott Besant Coming up this Friday, 13th of March. I'll be recording that in Washington late the day before. But for now, our thanks again to Ruchir Sharma.
- [45:58]
A
Thanks, Lut.
- [46:00]
B
The Master Investor Podcast is sponsored by BNY Investments, Elseg and Interactive Brokers. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice or a personal recommendation. More on that in the show Notes. This podcast is produced by Paradine Productions and Master Investor limited In association with Birdline Media. If you've enjoyed the show, please do subscribe on YouTube or click follow on your podcast platform and you'll be automatically notified each time a new episode drops.