Morgan Stanley’s Sharma Takes Pro-EU Contrarian Bet on Poland to Romania

Blog author Gavin Serkin is the Editorial Director for OnFrontiers and the Founder and Managing Editor of the Frontier Funds Consultancy.

By Gavin Serkin

Amidst the European Union’s apparent slow-motion car crash comes a voice of hope from unexpected quarters.

Ruchir Sharma, the Morgan Stanley money manager renowned for his against-consensus, bearish stance on Chinese stocks ahead of the market’s plunge in 2015, is out on a limb once more – this time with a bullish position on Europe. Even as British and French voters compete to undo decades of progress on economic harmonisation, Sharma says he’s confident that the region’s economy is picking up.

Ruchir Sharma, economist and writer of Breakout Nations at The Edinburgh International Book Festival . Credit Geraint Lewis

“Europe can do a lot better than people think,” Sharma said during this week’s OnFrontiers ExpertChat forum, broadcast from Morgan Stanley’s headquarters in New York. While the political risks are “very well telegraphed” and the continent has suffered two recessions in the last seven to eight years, a third, “Would be even more unprecedented,” he argued. “There’s a lot of pent-up demand in Europe, whether it’s car sales, consumer durables, even property.”

Consequently, the Head of Emerging Markets at Morgan Stanley Investment Management is leading his team to “big bets” on companies and banks with European exposure and countries including Poland, the Czech Republic, and Romania.


Sharma, who lays out a long-term vision of slowing economic growth worldwide in The Rise and Fall of Nations, also offered nuanced words of comfort for those concerned about the potential impact from President Trump’s policy agenda. While protectionism, or deglobalization, is “here to stay” for the next few years, Trump’s power to take initiative is limited, Sharma argued.

“If a leader like Donald Trump had risen in emerging markets, there would have been a lot more panic and anxiety in the financial marketplace,” reasoned Sharma. “But in the United States, I almost feel as if there are so many checks and balances – the establishment is so strong – that it’s very difficult for one leader to make a substantial difference to the fate of this nation.”

In that sense, the US has become a “post-democratic society,” said Sharma. “The ability of one person to influence this country, even if he or she is the president, is more limited than we think.”

Parcel to parcel of debt

So does Sharma’s perspective hold out some hope for China too? Not quite.

“China was able to escape a possible financial crisis, which seemed like a real prospect in the first quarter of last year,” Sharma acknowledged. “But I always said that the prospect of China having a crisis is rather low, just because of the fact that a lot of its debt is internally funded; there’s no external capitalist to come calling for the debt.”

Meantime, however, the situation is getting “more and more out of control.” For every four dollars that China borrows, it’s only managing to add one dollar of new GDP growth. “That, for me, is very worrisome because whenever a country has taken on so much debt over such a short span of time, the end is rarely good.”

China will continue its “parcel to parcel” of debt between different entities in the government, said Sharma. “But the concern which I still have is that, if something can’t go on forever, it won’t. Can China really continue on this path where on the surface the growth targets are being met but beneath the surface the debt pile continues to build up in this very extraordinary fashion? Even now, some of the internal stresses are building. You see tensions out there in the domestic money markets, the bond markets in China. It’s still not at a breaking point, but those tensions are building. It’s something I would really keep a very close eye on. It’s a ball bouncing down the stairs; it bounces back up and then the descent continues.”

Missed our #ExpertChat with Ruchir Sharma? Be first for the next one. Sign up now:

May 16 at 11:30 a.m. EST and 4:30 p.m. BST

We’re at African Utility Week, an event that draws 7,000 people to Cape Town for three days of discussions on the future of African energy and water. Our panel will include:

  • Chris Trimble, World Bank Senior Energy Specialist
  • Mamadou Biteye, Rockefeller Foundation Managing Director for Africa
  • Cathy Oxby, Africa GreenCo Commercial Director


Featured image courtesy Dennis.

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