In a world reshaped by slower global growth, one needs to start looking at the emerging markets as individual cases. Against this perspective, this book tours the world to examine which nations are likely to flourish—or disappoint—in the new era of diverging economic prospects. Investors have been drawn to the rapid growth and what some see as “economic miracles” among countries described as the emerging markets. A potentially profitable strategy is to spot the next country growth stock in advance, and to cash out of those countries before their growth peaks. As head of Emerging Market Equities at Morgan Stanley, author Ruchir Sharma is well-qualified to help investors in this process.
The 292-page book, which is divided into 14 chapters, starts with the question for all investors: What is the future growth rate of China? His conclusion is reflected in the title of the chapter “China’s After-Party”. Today, China is being hit by wage-driven inflation. It has grown to a size that starts to impact its growth rate. The outlook is for a slower growth rate, but not a collapse, as other experts on China have pointed out. China has a rapid growth in consumer spending.
Like most authors writing on new markets, Ruchir Sharma gives importance to China and India, dubbed the twin engines of future growth. He gives a country-by-country account, and knows how to tell his story lucidly. He avoids dry statistics and economic theories and gives an interesting personal account. He does not give sermons from a distant America or Davos. He spends one week every month in an emerging market to gain first-hand, grassroots experience. To identify breakout nations it is key to travel with an eye toward understanding which economic and political forces are in play at the moment, and whether they point to growth, and at what speed.
What makes the book so fascinating is the author’s experiences visiting and investing in so many of the emerging markets. He is well-versed in all the relevant economic statistics and financial trends. In addition, he is a writer who knows how to grab the reader’s attention and keep the reader engrossed. Most importantly, the author challenges the popular consensus on many countries, and presents many observations and conclusions that emerging market investors must consider.
India’s high population and equally high growth rate was supposed to be a problem, but now it is considered to be a demographic dividend since India’s policy planner have taken the view that China’s high growth is partly the result of a baby boom. India’s confidence ignored the post-war experience of many countries in Africa and the Middle East, where a flood of young people into the labour market produced unemployment, unrest, and more mouths to feed. The conventional view is that India will be able to put all those people to work because of its relatively strong educational system, entrepreneurial zeal and strong links to the global economy. All of that is real, but India is already showing some of the warning signs of failed growth stories, including early-onset overconfidence. Most outsiders were just as confident before the recent signs of trouble. The probability of India continuing its journey as a breakout nation this decade is at closer to 50 per cent, owing to a whole series of risks that the Indian and foreign elites leave out of the picture, including bloated government, crony capitalism, falling turnover among the rich and powerful and a disturbing tendency of farmers to stay on the farm.
The book brings out very well the need for China to become more normal, with slower growth and more consumption, spreading the fruits of growth more widely. It has yet to become the world’s largest economy. A slower China means a less disruptive China, producing less geographical friction, fewer trade battles, and less fear of a rising ‘Red Dragon’. So perhaps this is not a bad thing. This is among the best books to understand the emerging world and its positive and negative aspects.
By Ashok Kumar