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How Babies & Billionaires Decide Where This Top Morgan Stanley Investor Invest In

Nairametrics by Nairametrics
June 8, 2016
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How Babies & Billionaires Decide Where This Top Morgan Stanley Investor Invest In
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Ruchir Sharma is the  head of emerging markets at Morgan Stanley Investment Management and a member of last year’s the Bloomberg Markets 50 Most Influential list . He revealed some of his guiding princple on Bloomer for countries seeking to rise.

This is his famous article about Nigeria being a case study for the curse of oil written last year for the Wall Street Journal

He explains that these are the principles behind his five-year investing strategy. Sharma manages a dozen or so developing-nation funds; the biggest three, with assets of about $3 billion, each have returned 4.7 percent or more this year, outperforming their benchmarks, according to data compiled by Bloomberg. We culled up his revelation to Bloomberg in the rest of this article below;

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Enjoy it!

The Baby Rule

A shrinking work force has been one of the biggest causes of the anemic global economic growth since the 2007-2008 financial crisis, Sharma writes in his new book, “The Rise and Fall of Nations.” A single percentage point decline in labor growth typically shaves economic expansion by a like amount, he says.

Since 1960, only three countries — Portugal, Georgia and Belarus — have been able to grow 6 percent or more while their labor supply contracted. That means China, whose working-age population decreased last year, faces a hurdle meeting its 6.5 percent annual growth target for the next five years.

Nigeria, Kenya, Egypt and the Philippines have some of the world’s fastest growing working populations, which bodes well for them.

The 40 Percent Debt Rule

The magic number is 40. Sharma’s research identifies 30 countries that saw their economic growth rates cut in half within five years after private credit expanded in the prior half decade to 40 percent or more of the gross domestic product.

China is at risk on this score. Since 2008 the country’s corporate and household debt has nearly doubled, outpacing the credit expansion in Thailand that preceded the 1997 Asian financial crisis, the largest borrowing binge in emerging-market history, Sharma said in an interview in his New York office.

“Once you take the kiss of the debt, it’s very difficult to unlock it,” Sharma said. While China has the tools and resources to avoid a financial crisis, its “growth trajectory is like a ping-pong ball bouncing down the staircase.”

The Good vs. Bad Billionaires Rule

Corruption scandals that erupted six years ago in India inspired Sharma to start examining nations’ wealthy elites. He divided the net worth of each country’s billionaires from the Forbes list of the world’s richest people by that country’s GDP. The rubric serves as a loose gauge of the economies’ health and equality, Sharma writes in a chapter titled “Good Billionaires, Bad Billionaires.”

Net Worth of Emerging Economies’ Billionaires as Percent of GDP:

CountryWealth/GDP 2014 (%)
Poland2%
South Korea5%
China5%
Turkey6%
Indonesia7%
Brazil8%
Mexico11%
India14%
Taiwan16%
Russia16%
Emerging-Markets Average9%

Source: Forbes, Haver Analytics, Morgan Stanley Investment Management; as of 2015 Q1

Sharma sees red flags when billionaires own more than 5 percent of a country’s GDP. An evolving cast of self-made tycoons, such as founders of billion-dollar tech unicorns, is better than an inbred cast of corrupt ones, especially those reliant on inherited wealth or politically connected industries, he adds.

The Cheap-Is-Good Rule

In the early 2010s, Sharma heard tales of Brazilians flying to Manhattan and hiring shipping containers as their shopping bags. The strength of the Brazilian real made them feel rich. That period marked the peak of the country’s economic boom. The lesson: An overvalued currency tends to tip an economy off balance.

By this rule, South Africa and Mexico look competitive because their currencies have depreciated in recent years. On the other end of the spectrum, China’s inflation-adjusted exchange rate for the yuan has increased 49 percent since 2006, more than any other emerging-market currency.

Culled from Bloomberg


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Nairametrics

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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