June 4, 2012
By Steve Monroe
“Breakout Nations: In Pursuit of the Next Economic Miracles” by Ruchir Sharma is a comprehensive and comprehensible guide to investing in emerging markets in the post-BRIC era. Sharma, the head of Morgan Stanley’s emerging markets division, predicts that as Brazil, Russia, India and China confront the headwinds of rising expectations and lingering structural deficiencies, new economic stars will emerge. Complementing hard economic data with colorful vignettes, this book follows Sharma across the globe as he unveils his science and prophecies for next decade’s “Breakout Nations”.
At its core, “Breakout Nations” is a call to abandon the BRIC acronym. Sharma debuts by sketching the vast economic and political differences between each BRIC nation. More broadly, the “emerging market” label – by encompassing nations as varied as Poland and Peru – is analytically problematic. Amidst the global economic slowdown, each emerging nation will respond and perform differently. In this time of uncertainty, Sharma argues that successful investing depends on understanding emerging markets on a country-by-country, on the ground basis. “Breakout Nations” compiles Sharma’s tips, insights and experiences investing while on the road.
Readers will pounce on Sharma’s “rules of the road” to emerging market investing. To list a few, Sharma looks at a country’s ratio of millionaires to billionaires to gauge competitiveness and the potential for innovation. The prevalence of large cities outside of the capital may point to economic diversification. Rising populations are good, so long as people are moving to better paying and more productive industries. In determining whether autocracies are more business friendly than democracies, Sharma argues that it is not so much the political system, but the vision of the leader that matters. Though it seems counter intuitive that a book calling for a deeper, contextual study of individual markets would include a list of generalities, these “rules of the road” should not detract from the bulk of Sharma’s country analysis and insights.
Without revealing too much, Sharma is bullish on Poland and optimistic about Turkey and Nigeria. South Korea, a perennial manufacturing juggernaut, is his favorite. With regards to frontier markets, Sharma asserts that “if smart thinking depends on understanding how different the emerging nations are,” the rule applies “twice over” on the frontier. He continues that the frontier is where “the world is likely to see some of the most explosive growth in the next decade,” concluding that “these are the countries where getting a few things right will make a huge difference.”
“Breakout Nations” is an enjoyable and instructive read. While experts may dispute Sharma’s country level analysis and his prognosis of future breakout nations, his central argument is sound. Emerging markets can no longer be viewed monolithically, but on a case-by-case basis. Reflecting Leopard Capital’s ethos, “Breakout Nations” is a call to investors to get out of their offices and sense countries’ investment opportunities for themselves.
Breakout Nations: In Pursuit of the Next Economic Miracles. By Ruchir Sharma. W.W. Norton; 292 pages.
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