Ruchir Sharma learned the hard way that there are consequences for voicing his perspectives.
When asked by the Russian prime minister’s office to give an honest assessment of the country’s economy, the chief global strategist and head of emerging markets at Morgan Stanley Investment Management did exactly that.
At a conference in Russia in October 2010, the Indian native spoke to an audience which included Russian President Vladimir Putin and Christine Lagarde, who at that time was the French finance minister.
“I was frank about it and said (that) when Putin first came to power in 2000, he made all these reforms that were good for the country, but 10 years later, the country is struggling for a new growth model, the commodities boom had peaked and the economy had not diversified enough beyond oil.”
Lagarde “looked uncomfortable” on stage, he recalled.
Although Putin later referenced some points made by Sharma — which Sharma interpreted as a good sign — his evisceration of the country’s economy would not escape notice.
The following morning, the state-backed Russian media skewered him for his “fear-mongering” speech and derided his analysis at a time when oil prices were frothing at $100 a barrel.
The new thorn in Russia’s side fled immediately.
“It was spooky,” he said. “I was happy to leave the country as you don’t want to be on the wrong side of the Kremlin when you are there.”
But the ordeal helped his writing career as it contributed to his new book, The Rise and Fall of Nations: Forces of Change in the Post-Crisis World, which posits a 10-rule system to gauge the health and prospects of a country over a five-year time frame.
One such rule is called The Circle of Life, which states that the longer a leader stays in power, the worse it is for the country.
His team of researchers found that a new leader makes the most reforms initially that will benefit the stock market over two years, but those returns diminish the longer the leader stays in office.
“That experience showed to me how Putin operates and how leaders change over time. The Circle of Life rule was inspired by this episode.”
His framework is also rooted in the global financial crisis of 2008.
“Before the crisis, it was a popular view that emerging markets would become developed markets, globalization would just continue unabated and democracy would spread to various countries,” he said.
Today, these ideas have ramped up in reverse, as evidenced by Brexit, the oil and commodities crises that have crippled various emerging economies, and more. The dominant view is that these shifts are more enduring, such as deglobalization.
Another one of his rules is People Matter, where demographics contribute to the economic slowdown of a country.
“Productivity and increases in labor force growth are two factors that drive economic growth,” he said.
Based on the 10-rule system, the United States is in the good category and he holds this position even if Republican presidential nominee Donald Trump wins the elections.
“In developed markets like the US, the role of politics has less of an impact (on the economy) than in an emerging market where institutions are much weaker,” he explained, adding that individuals can have a much greater impact in an emerging market. Even if Trump comes to power, it is debatable how much he can do, argued Sharma.
China, however, is headed for trouble, according to his Kiss of Debt rule. This states that if private debt increases its share of an economy by more than 40 percentage points within five years, that country is likely to enter a slowdown in the next five years.
“At the peak of the US housing bubble in 2008, it took $3 of debt to create $1 of GDP growth. In China in the last year, it took $4 of debt to create a dollar of GDP growth.”
The mainland is going down the path of increasing debt to keep the economy afloat, and there will be a price to pay for this debt bomb, he added. In relation to the People Matter rule, the working-age population also shrank for the first time last year, which will impact economic growth.
Like most forecasters, sometimes Sharma’s views misfire.
“My entire idea is to be intellectually honest … as too many people in our industry say polite and nice things to be on the right side of governments, and I don’t see this as a good way to go,” he said.
His perspectives have been shaped by his well-traveled upbringing and an inherent intellectual curiosity since youth. Due to his father’s military job, the family lived in various locations including New Delhi, Mumbai and Singapore. These experiences stirred his fascination about what drives the world.
“For some reason I had curiosities about economics and politics and writing at age 17,” he said. “At that age, I couldn’t find people willing to let me manage money. The next best thing that I could do was write about it and I really enjoyed that,” he recalled.
In 1991, India was opening up to the world and reforms were in progress. It was also the year Sharma’s teenage journalism career began. He saw a gap in media coverage of global economics and politics and jumped at the opportunity to write about foreign exchange markets for a newspaper.
After graduating from Shri Ram College of Commerce in New Delhi, he found a job at a securities trading firm and continued to write articles on the side. He was also considering a PhD in economics, and started filling out applications for colleges in the US.
However, a meeting of minds at Morgan Stanley would pivot his career path. The financial services group was one of the first investors to enter India in those days, and Sharma got in touch.
“They found it surprising that somebody in India was writing about global economics and politics,” he said.
He recalled the line that sealed the deal with Morgan Stanley. “They asked me: ‘Do you want to study or do you want to make money?’” The then 22-year-old ditched his academic plans and joined the firm where he would dedicate the rest of his professional life.
Sharma was still a writer at heart, however, and had always dreamed of writing a book.
The idea for his first title was rooted in widespread obsession with the BRIC nations — Brazil, Russia, India and China — throughout the early 2000s as people were lapping up the exuberance of the grouping as a future economic power.
However, Sharma was not convinced.
“When you write a book, you have one big idea. Mine was that there was too much hype about BRIC economies. I thought the hype was unsustainable,” he said. Sharma’s theory was elaborated in Breakout Nations: In Pursuit of the Next Economic Miracles, which was released in 2012 and did well internationally.
“It’s one of those things where once the bug bites, it’s hard to back off,” he said of his current book, which made it to The New York Times best sellers list.
Sharma is straightforward about the effectiveness and failures of his 10-rule system. With any framework, there will be exceptions to the rules.
The author emphasized that his system does not offer certainties but an increased probability of understanding the world.
“People point out that this or that didn’t work or (my rules did not) capture a particular trend, but no rules or system are 100 percent right all the time. To believe in that is a total myth.”
Managing director, head of global emerging markets equity team and chief global strategist at Morgan Stanley Investment Management
1994: BA with honors in commerce from Shri Ram College of Commerce, University of Delhi
2016: Author of The Rise and Fall of Nations: Forces of Change in the Post-Crisis World
2012: Author of Breakout Nations: In Pursuit of the Next Economic Miracles
1996-present: Joined Morgan Stanley in Mumbai and later moved to its fund management unit in New York at Morgan Stanley Investment Management
1994: Worked at Prime Securities in Delhi and helped run the company’s foreign exchange arm
1991-present: Used to write for The Economic Times and Newsweek, now a regular contributor to The Wall Street Journal, The Financial Times, Foreign Affairs and other media outlets.
Who are your role models?
I don’t have role models per se but there are people I admire a lot. In China, for example, there’s Deng Xiaoping. He was such a visionary; he changed the course of history.
I grew up in the 1980s, so the troika of leaders at that time, Deng, Margaret Thatcher and Ronald Reagan, are figures I admire as they all changed the course of history. I admire different qualities from different people. That’s how I view role models.
What is your favorite book of all time?
The Great Gatsby (by F Scott Fitzgerald), my favorite novel of all time, is a great American novel.
What do you do in your spare time?
I’ve been a sprinter for years. I train 60 to 90 minutes every day. I’m a 100 meter to 200 meter runner. I have participated and represented India at the World Masters Championships in the over-25 category. Sprinting for me is a form of meditation, so I do it daily to feel better.