I'm a volunteer with CFA Society Vancouver's programs committee. Welcome to this presentation, Navigating Geopolitics in Emerging Markets, presented by Timothy Ash and Haley Hopwood. A couple of items before we begin. There will be time towards the end of this session for your questions. So please enter your question into the Q&A box. My colleague from CFA Society Calgary, Julian Klymochko, will be facilitating the Q&A portion and we have consent for this presentation to be recorded. Upon your demand, the access link will be forwarded to you after the webinar. My colleague from CFA Society Ottawa, Poppy Rui, will be wrapping up the webinar on the hour. So at this time, please allow me to acknowledge our annual sponsor, RBC Global Asset Management and PH&N Institutional for their continuing sponsorship and support. And our co-host CFA Society Calgary and CFA Society Ottawa. Thank you for your collaboration.

Now it's my pleasure to introduce our speakers, Timothy Ash and Haley Hopwood. Timothy is a Senior Emerging Markets Sovereign Strategist on the BlueBay Fixed Income team at RBC Global Asset Management (UK) Limited. Prior to joining the organization in 2017, he had worked as a part of CEEMEA credit strategy at a financial service team and head of Emerging Markets research (ex-Africa) at multinational banking company. Timothy worked as an Economist at several leading financial services and market intelligence firms.

Haley Hopwood is an Institutional Portfolio Manager at PH&N institutional. In this role, she works closely with clients and consultants to manage a wide range of fixed income investment mandates, including Universe, Long Bonds, and Corporate Bonds.

Prior to joining the institutional team in 2012, Haley spent two years with RBC Global Asset Management’s Advisor Channel sales group, where she helped to promote PH&N and RBC mutual funds among financial advisors and brokers across British Columbia.

So now we welcome Timothy and Haley. The stage is all yours.

Perfect. Thank you so much, Joanne. Hello and welcome, everyone.

I would like to thank you all for joining us here today. Whether it's live or via a recording. We hope that you find today's discussion insightful as we dive into the ever evolving world of geopolitics in emerging markets. So we're going to start our discussion by talking about some of the regional conflicts that are going on across the globe right now, that I'm sure everyone is following fairly closely in the news, touching on the implications and potential resolutions of those conflicts.

Then we'll move onto the topic of elections. It's been a very busy year for elections. By the end of 2024 alone, almost half of the world's population will have gone to the polls. That represents approximately 4 billion people across 76 nations. Many of those emerging market nations. So lots to unpack there. And then finally, we'll finish by providing an outlook for emerging markets before opening up the floor to all of you to ask your own questions.

 And when I say we, I really mean Tim, because Tim is going to be doing the bulk of the talking here today, drawing on his incredible wealth of knowledge in this area. And so, Tim, maybe before we get to the main event here, we can spend a little bit more time with you discussing your role as investment strategist. Perhaps you could just give us an introduction to your role and then share with us some of your most valuable sources of information.

Yeah, sure. Well, I sit on, the trading desk here. I advise portfolio managers at RBC BlueBay, big team, both in the emerging markets, in the developed markets side, geopolitics increasingly in Emerging Markets, spreads globally. So, you know, I have lots of discussions and calls with both the DM and the EM teams, about how geopolitics, politics plays out in terms of their portfolios. My own background, you know, as you mentioned, I've been an economist for 35 years, 25 years in sell side banks, 7 or 8 years at RBC BlueBay.

I'm very fortunate, actually, at RBC BlueBay, very unusually on the asset management side that they let me have two roles. So, I'm also associate fellow at the Royal Institute of International Affairs, Chatham House. I'm a known expert on particularly my area of specialism, which is Russia, Ukraine and Turkey. I'm a fellow on the Russia Eurasia program.

And actually, you know, one of the, you know, it's a very complicated area. No one has all the answers. You know, we approach the topic in a very holistic approach. I visit countries a lot. I talk to a lot of policymakers. I utilize my role, Chatham House, they provide a little advisory to Western governments.

We I get a lot of feedback about what's going on internationally. Interestingly, also, I publish, I write. Outside my role at RBC BlueBay, I have a Substack page, I write for Chatham House. And the fact that you, you’re viewed as an opinion setter, you know, I have you know, you may not like what I write.

You'd be welcome to subscribe to it, but the fact that I put views out the things that people actually want to influence you. So, you know, I've got a distribution list with, hundreds of US government officials on my list, UK government officials. They want to interact with you. They want to understand how you think about geopolitics in the market, but they also want to understand, you know, particular country situations.

You know, said I'm viewed as an expert on Ukraine, Turkey. So, they ask me about my views. And, you know, that interaction is really important in helping me understand, you know, how the US government or UK governments or European governments think about some of these big geopolitical issues. So, anything I use, any opportunity to hone and improve my own views about the countries I cover.

Perfect. Okay. Thank you for that. Your work sounds fascinating, and I'm looking forward to hearing your thoughts as we go through the discussion today. So let's dive into it. And we'll start by talking about some of those, major regional conflicts. Russia, Ukraine have been at war now for over two years. And then there's also the Israel Gaza conflict in the Middle East that's been going on for, close to a year now.

Obviously, some devastating human loss, occurring there and, and lots of implications that have spread really across the globe. So maybe you can spend a little bit of time talking about what you are most closely watching in those regions, and then what you see as potential paths to resolution.

Yeah, sure. I mean, it's interesting. Geopolitics is center stage.

I mean, you can't open the New York Times or the F.T. or whatever, and there's some discussion about geopolitics and its importance. You could probably say that geopolitics has been around thousands of years, you know, surely foreign affairs, military, etc. I think why it's more vogue now, and more difficult to figure out is, you know, we live in a globalized world, a multipolar world with ball players in the US, Europe, China, Pakistan, India, all these different countries coming together. And actually, the tools of geopolitics are much more diverse than in the past. I mean, I guess in the past you'd withdraw an ambassador from a particular country if you were annoyed, you may invade that country. I guess now with nuclear deterrence, you know, countries are less willing to go to war.

Unfortunately, they do. But they use a lot more different tools, sanctions, tariffs. We've seen Russia, for example, use migrants, you know, destabilizing regions like Syria to force migrants into Europe to deliver on some geopolitical objectives, cyber-attacks, people trying to influence other countries’ politics. I mean, it's very, very diverse, right? And there's a lot of interplay and it's really difficult to figure out.

And I think often when people think about geopolitics, they throw their hands up in the air and they think it's just too difficult to figure out. The world's crazy. We're all going to, you know, we're in a difficult place, and it's all about escalation. And yes, sure, the world at the moment faces some terrible conflicts, some really difficult challenges.

I guess my job is to figure out the market impact and in particular, how they impact on the portfolios that we run. And I guess if you look at the big geopolitical challenges, you know, you mentioned Russia, Ukraine, Gaza. Now obviously Lebanon, that's blowing up and then China, US relations, etc.

I mean, I guess there's a temptation, again, to think that there will be a huge global market impact, right. And in particular cases, I mean, I think if you think that Russia, Ukraine initially and if you go back to late ‘21, early ‘22, the market misread that particular conflict. Many investors got it very wrong. They were the wrong way positioned, they were long Russia, actually long Ukraine also around that conflict. And you know, many businesses were stuck in Russia. They got they got their geopolitical call wrong. And I think it proved that, you know, understanding geopolitics can, can really make an impact on your P&L. It's important you think about it, you understand it, etc.

Now, in terms of those conflicts you mentioned, they're all I mean, the horrible in, you know, lots of respects, you know, the death, destruction, etc. that have been suffered by populations in Russia, well, Ukraine, Gaza, and now Lebanon. I guess from a market perspective, the worries about escalation. Right?

 And let's take the first example, which is, Israel-Gaza now, Israel, Hezbollah and Lebanon, the worry clearly is that that conflict escalates into a regional and global conflict, dragging the US on the side of Israel against Iran and involving, say, the Gulf states, with a potential huge impact, obviously, on energy, oil and energy markets and global markets, right.

I mean, that would be the initial knee-jerk reaction. That was obviously the concerns around October 7th last year. The reality, though, has been the conflict has been relatively contained. As I mentioned, dreadful outcome in Gaza, obviously, October 7th, a nightmare event, terrible impact on Israel and Gaza. Obviously, tens of thousands of casualties. And now we're seeing it rolled out to Lebanon, but we haven't yet seen escalation.

We haven't seen an Israel-Iran war. We haven't seen the US come in on the side of, Israel against Iran. And there are reasons for that. And I guess, which would make one perhaps a little bit more optimistic that this conflict can be contained and all these set of conflicts can now be contained. And I think for me, key here is that key players do not want escalation. In the US administration in particular, obviously facing a very difficult election. Biden, Harris. They don't want, gas prices at the pumps to go higher.

They're very eager to contain, this war, these wars to the region. And they've obviously spent a lot of diplomatic effort trying to bring a Gaza ceasefire, but also encourage Israel to moderate. You could say the other protagonist, key protagonist, Iran, I mean, Iran is coming out of a very difficult period of political instability, threats to the regime.

In very recent years, its focus has been on economic reform, trying to improve the economy. So, it's been engaging with Gulf states, for example, Chinese brokers deal between Iran and Saudi Arabia. It thinks that some kind of economic stability, normalization progress or whatever can improve its domestic political standing. It does not want to get involved in a direct war with Israel and likely the US, which probably would lose badly, and it would open up a whole Pandora's box for that particular regime in terms of its political stability.

So, Iran doesn't want a world conflict clear. Neighboring states, Jordan, Egypt, they have, you know, poor populations. They certainly don't want, more refugees, more instability that would challenge, their own regime, particularly, President El-Sisi in, in Egypt and the Gulf states also. I mean, their focus in recent years has also been on reform.

Most of those countries, Saudi, Qatar, Oman, they have these new vision programs, economic development focused on diversifying away from oil and commodities. Key parts of that are tourism, logistics, and insecurity and war in the region do not help those projects, those programs. So and as I mentioned already, the new engagement or re-engagement between Saudi Arabia and Iran is really based around, you know, MBS in Saudi Arabia wanting to get to do more trade, with the world through, Saudi ports, but also get more tourists in.

And they, they want stability in the region. So, there's a lot of factors here at play that would suggest you know, there's a desire not to escalate, not to go down the worst-case path. One of the difficulties for someone like myself figuring all this out is, you know, maybe not all the players have the same, interest set or objectives.

And one of those plays in Israel at the moment and it's increasingly difficult to figure out, you know, the escalation desire of Israel. I mean, I would say that, Israel's in a kind of unique, interesting position at the moment in terms of, the perhaps force escalation or encourage escalation.

Firstly, I mean, obviously, Netanyahu is domestic political situation has been challenging. He's had judicial issues. An extended war perhaps helps him out in terms of opinion polls. It puts off that legal and political reckoning. There's this opportunity, the fact that these other players don't want war, an all-out war, gives Israel escalation dominance. Now it has fundamental problems around its security as well. Hamas, its challenge to Israeli security as seen on October 7th, Hezbollah has constant rockets, rockets attacks on the of northern Israel, but also the longer-term challenge, up to Israel's security from, Iran's nuclear program.

Now, interestingly, there's a window of opportunity for Israel now where it knows that Iran and Hezbollah do not want an all-out war there, pulling their punches in terms of retaliation and that, you know, gives, Israel this opportunity to push through with its efforts, obviously, to degrade Hamas, in Gaza. But now we see in Hezbollah, in Lebanon itself.

And I guess the question and also interestingly, it knows the US is not going to do anything particularly to constrain it, because Biden is obviously focused on the US elections. And he is worried about a domestic political backlash if he's seen to go soft on Iran, Hezbollah and Hamas and pull back in terms of support for Israel.

So, the US is in a difficult position. Israel sees this opportunity. And I guess the question is how far Israel is prepared to go, what are its war aims here, is it just about, you know, reducing Hezbollah's military capability in Lebanon? Is it about securing this, demilitarized zone south of the Litani River? Is it more going beyond that? Is it cleansing Lebanon of Hezbollah influences?

And ultimately, does Israel see this as an opportunity to pull the U.S. into a conflict with, with Iran to ultimately degrade Iran's nuclear capability? I mean, we simply don't know that. My base case is we see, an extended war unfortunately, Israel continuing to push, into Lebanon and continuing to use airstrikes, possibly a ground invasion.

But I think possibly stopping short of that, you know, that push by Israel to define Iran's redlines, in terms of a direct attack itself on Iran. And that would suggest that this particular conflict does remain contained, its global impact still relatively moderate. I mean, it is pretty incredible if you think coming up to almost a year, past October 7th and international oil prices are lower than before, you know, Hamas's attack on Israel, which would suggest despite, you know, the initial concerns about escalation, but escalatory impact on global markets, the impact has actually been fairly muted.

So that's Israel, Gaza. Do you want me to move on now onto Russia, Ukraine? Or how would you want me to go from here?

Yeah. Why don't you talk about Russia, Ukraine. And then we'll keep going from there.

Sure. Well, again, you know, huge number of casualties on both sides.

Lots of concern about escalation, risk of, what kind of question marks about Putin's red lines. Is the West going to supply, or is the US going to greenlight the use of long-range missiles against Russia? Will that provoke some response by Russia? You know, I mean, if you think a couple years back we were talking about potential for Putin to use weapons of mass destruction, battlefield nuclear weapons in Ukraine itself.

I mean, despite that, none of that has happened. We haven't seen a direct NATO-Russia war. It has been contained again. There are pluses for me, from what we've seen so far. And the pluses are, you know, Russia didn't succeed, right? I mean, you know, imagine the world. Imagine Europe if in, February ’22 Russia succeeded as most people thought that it would succeed in its invasion of Ukraine in two weeks.

If that had happened, you'd have seen tens of millions of Ukrainian migrants moving west. Ukraine would not stay on the Russian occupation. Imagine the consequences of that for Europe. Populism, there's been a rise of far right, far left parties that would further promote that. It would cause huge social, political problems in Europe. Think about what you would have had to do in terms of its own defense.

You know, the fact that Russia would have gone through Ukraine in a couple of weeks. I would have, raised question marks about, you know,  where Putin was going to stop. Was he going to go into the Baltic states? Was he going to go into Poland? Could NATO defend itself? NATO would have massively, have had to have increased its defense spending.

Actually, it's already doing that. But I think it would have been multiples if Ukraine hadn't managed to stop Russia in Ukraine as it has done. And, you know, it's the front line. So that's a plus factor. We haven't seen use of weapons of mass destruction. I think the West better understands Putin’s red lines, if you think about it.

Putin sent lots of red lines, actually, in terms of use of, of supply of Western kit or actually, armaments in general to Ukraine. If you go back in the early period of the war, the Ukrainians wanted T-72s, MiG-29s. You know, we remember the debate about leopard tanks, HIMARS attack arms, really about the F-16s.

Russia sent red lines and every time he didn't keep to them. Right. He didn't bomb NATO's supply routes. He could have done to stop the weapons coming to Ukraine. And I think the West now better understands Putin. You know, the West understands that Putin is a bully. He said red lines doesn't particularly keep to them. There are constraints on Putin now.

It's interesting drawing a comparison with the earlier comments about the Middle East and Israel. Actually, this idea that Israel has escalation dominance, you know, it knows the other side is weak. It knows it can go through the gears of escalation. Nothing particular is going to happen. I think in the early period of, of the invasion, we thought Putin had escalation dominance.

I think we now know he doesn't, but we now know how to stop him, which is arming Ukraine, financing Ukraine, giving Ukraine the weapons to hold the line against Russia. So we better understand him. I think that we also understand that Putin himself has been weakened. Russia's position in the world has been diminished. This idea that Russian military technology is wonderful, lots of countries need to buy Russian S-400s like Turkey, like Egypt, like India, because they’re cheap comparables to Western kit.

That's just not the reality. I mean, what we seen in Ukraine last two and a half years is, essentially second generation NATO technology and kit, fourth generation Russian technology and kit. And I think that's degraded Russia's diplomatic reach globally. And it's diminished Russia's position, as a perceived great power.

I think, again, if you go back to the February ‘22, actually early, you think about the Beijing Olympics. There was a lot of talk about Russia as a peer competitor with China, or a partner in that relationship with the boundaries with China and a kind of a peer global power competition with the US. That's clearly not the case now. If Russia cannot beat a small, well, a big country, but certainly not a major military power, certainly in February ‘22 Ukraine, how can it sell itself as a global power with kind of global reach?

Now the conflict has been relatively contained, concerns about, you know, in Europe about an energy crisis, because of this have actually not happened. We got through that initial winter of ‘22. We got through it because prices adjust, consumption dropped, it accelerated the carbon transition, accelerated the move to diversify against away from Russian energy needs.

And I think Europe's in a much better place now to ride through an extended war if that's the result. And continued Russian, blackmail through the energy channel. Now, in terms of the key question of where this conflict's going now, I could sell a picture where, you know, Putin didn't win.

Europe has been bought time to improve its defenses. And from an energy perspective, European energy security has been somewhat assured. But the war may go on for a very long time. You know, it's a terrible outlook for Ukraine itself and the poor Russians dying also on the front line. I'm actually relatively optimistic. I'm relatively optimistic that we may well see near-term negotiations possibly at the turn of this year.

And I think that night, because the way I view it is both sides have proven that they can sustain a long war. Right? And actually, many people argue that, you know, Russia is in it for the long, long game. It can out, out last Ukraine. It can outlast, outlast the West. It can. It can, it can survive a long time.

But so can Ukrainians, right? Ukrainians have sustained a world for two and a half years against overwhelming odds. They may lack manpower and the weight of Russian munitions production. But they can make up for that innovation and drive and the desire to survive, so they can survive a long time.

From Putin's perspective, you know, he has to think through this.

You know, a long war, means a lot more loss of blood and treasure. It suggests risks, long term risks to Putin. You know, only a year or so ago, we were all watching the TV screens as Prigozhin‘s troops, the Wagner guys were a couple of hundred kilometers from Moscow. I mean, that was an incredible scenario that no one expected. Putin didn't expect.

And while, you know, it's hard to forecast these things, the longer Putin sustains in this war, or stays in this war, the greater the risk is that you'll suffer more casualties, more economic and financial pain. And ultimately someone around Putin or, you know, within the regime or around the regime will decide to take Putin out.

That's a risk.

So, I would argue from Putin's perspective, if he can do a deal, he would take it at this point in time. Now, from the Ukrainian’s perspective, you know, Ukraine, Zelensky cares about human beings. Putin doesn't. And it's clear that, you know, while Ukraine might have to accept sacrifices in terms of potential deals around territory, you know, it has to make difficult choices now.

And, you know, it could opt for a long war, to free all of Ukraine's territory in terms of including Crimea and LPR and DPR.  But the military and the human cost for Ukraine of taking, for example, Crimea, which has been a Russian military base for decades, is is well entrenched population also in DPR, LPL, have been subject to Russian propaganda for a decade or more, you know, pro-Russian population, entrenched defenses that would cost hundreds of thousands of Ukrainian lives. I'm not sure Ukraine is willing to do that. Now, I think the basis for a deal and honestly, also Ukraine has to think about the fact that the US elections, potential Trump presidency, will US support, sustain through those elections.

Does it make sense to do a deal, before the elections, around the elections, etc.? And I think the basis for a deal, could be that Putin withdraws his forces to where they were in February ‘22. They probably remain in Crimea and DPR and LPR, and there are long term talks about the future of Crimea, DPR, LPR.

Now, you could say, well, from both sides, how is that a win for Putin, right? I would argue the win for Putin and the way he can sell it to his domestic audience is that, you know, he fought Ukraine and NATO for two and a half years, and Russia, you know, didn't get rolled over.

Interestingly, Kherson and Zaporizhzhia, it's this land corridor to Crimea that has been so much focus. The reality is that Ukraine's missile strikes on Crimea means that Crimea is a naval asset for Russia is it's no longer sustainable as a naval asset.

Russia has had to move its naval resources out of Sebastopol. It's unable to use a lot of the Black Sea because of the success of Ukraine's attacks. Now, if you could offer Putin a deal where there's a long term, negotiation through the UN about the future of Crimea, but he's able to use Crimea as a naval base in the interim and insecurities secured because of this deal, I think Putin would take that.

And remember, Putin controls the information narrative at home. In Russia itself, he can sell any deal domestically as a win for himself and for Russia. So, it is doable. You could say, well, what about the Ukrainians? Well, as I've argued, taking Crimea, DPR and LPR militarily very, very challenging. Does Ukraine want to quickly reintegrate those populations?

We're talking about six, seven million people. The regions are very economically undeveloped. Imagine 6 to 7 million pro-Ukrainian voters back in the Ukrainian political system. They would vote for pro-Russian parties. They would probably destabilize politics in Ukraine for a long time, going forward. And it would cost a huge amount to fund the reconstruction of DPR and LPR.

So, I think there's a basis for some peace talks. That key will be security guarantees. Ukraine will need them. Obviously, discussions around NATO membership. It seems unlikely the existing NATO members would agree to that. But a minimum Ukraine would require is assurances that it will be supplied with the conventional military kit, to defend itself a bit like Israel in terms of the relationship between the US and Israel.

And I think can defend itself against, conventionally, against Russian attacks. I think that would be enough, to enable the Ukrainians to move forward, with EU accession also on the agenda, to move forward with reconstruction and recovery, to stabilize the country. So that's Russia, Ukraine. The other angle, if you want me to talk about now, China, China, etc.

Yes. Yeah, US and China and potential tensions there between those two superpowers. Let's touch on that quickly before we move on from this topic of conflict.

Okay, well, again, you know, the temptation is to fall into, you know, the US and China inevitably heading into, conflict, terrible relationship, tariffs and all that. I take a slightly different take.

And, and I think, because of the war in Ukraine, I would argue US-China relations are better than they were in the early period of the Biden administration. If you remember the, you know, I put it in the slide deck here, angry in Anchorage. Remember, really early in the Biden administration, Blinken met with his counterpart in Anchorage, and they almost ended up in a slanging match between the two, right?

The positions were too far, so far apart. I think the assumption had been, and the, the concern in the US after the, you know, when Ukraine, sorry, Russia invaded Ukraine in February 2022, was that China was going all in behind Russia. And, that the reality is that has not been the case. China has been really careful about what it supplies to Russia.

And I think, you know, Chinese support for Russia could have been really decisive, in this war, decisively in favor of Russia. And it hasn't happened. Why hasn't happened? Because I think what we learned about, China, is its key relationship is not with Russia. It's not about the friendship without limits. Actually, the key relationship for China is the US.

Now, what it cares about, it has this agenda of, you know, long term economic hegemony with the US, but built around globalization, trading with the world and avoiding getting into war and conflict. Right? Actually, I think the US and the Biden administration recognize the fact that China has not provided Russia with the munitions to win the war in Ukraine.

I mean, that's it's reflected by the fact that Russia has to go to Iran and North Korea to get those munitions, its signal that it's not getting what it wants of China. Right? And I think by the Biden administration has pulled its punches on the tariff front against China in recognition that the Chinese are kind of playing ball in the war in Ukraine.

So that's the one positive. The second one is obviously the concerns around Taiwan. You know, many people thought that there was some coordinated action between Russia and China. Russia would go into Ukraine, and China would use that opportunity to go into Taiwan. Didn't happen. Most of the evidence suggests that Putin didn't tell Xi, that Xi was annoyed by Russia's actions, because Russia's actions were rash.

You know, they, threatened to destabilize global markets. They destabilized, they were threatened to take off track this long term Chinese agenda of using globalization to reach economic hegemony. And China doesn't want anything that rocks global markets. I mean, that's important and Russia, China likes the status quo. Russia doesn’t. Putin hates the status quo.

He's been trying to change that up. And I think what we saw here is, China, well, improvement in the relationship with the US, in particular, recognition from the Americans that China is playing ball. But actually, if you were the Chinese looking at the conflicts in Ukraine, what are the lessons you learned? Well, again, it's a bit like, the US intervention in Afghanistan and Iraq. Don't get involved in wars you can't win.

If the Chinese are going to Taiwan, they have to be certain they will win. And I think the underperformance of Russian military technology in Ukraine, which Chinese military technology in the end, is a derivative of Russian technology. The Chinese must be really worried about whether the kit they use, would have the same effect as we've seen in Ukraine.

And I think actually, the war in Ukraine has improved relations with the US and China, and it's reduced the likelihood of a Chinese attack on Taiwan. And that's a positive. Right? And I think, you know, because of that, we're seeing, you know, military to military contacts between the Americans and the Chinese. And that's really important. Obviously, one of the areas, that is kind of beyond Taiwan, is, you know, the conflict in the South China Sea.

And obviously that's still a major stress point. I'd be more worried about that, than I would be at Taiwan, at this point in time. So I think, you know, the three themes that I would play on in these three areas of conflict, are that actually, we haven't seen the worst case scenarios. Right? We haven't seen Putin win.

Russia didn't use weapons of mass destruction. We didn't use weapons of mass destruction. I think because the Chinese told him, don't do that. It's a boundary. It would massively destabilize global markets. We don't want that. It's, improved relations with the US, and it's reduced the chances of a conflict in Taiwan. And, also in the Middle East, I think there are still guardrails to that particular conflict, which gives us hope that these, well, that particularly conflict won't escalate to something that would have a devastating global impact. Kind of a silver lining if there is.

Yeah. All right, well, why don't we move on from conflicts and talk about elections? Because there's there's been a lot in emerging market nations so far this year, including South Africa, India, Taiwan, South Korea, Mexico, Venezuela, just to name a couple.

And many of these have been very hotly contested elections with results that didn't necessarily line up with what expectations were leading in. So South Africa is a good example of that. The ruling African National Congress, the ANC, they remained the largest party, but with significantly less of the vote than was anticipated. In India, the incumbent Prime Minister, Modi, was expected to win by quite a decisive, victory that didn't end up being the case.

So maybe you can just spend some time helping us understand the results of these two elections, and then any others that that you think are notable and share some thoughts on what the impacts have been on markets and some forward looking views as well.

Well, I think we went into this year fearful about elections. Obviously, there's a big election coming up and a country close to where you're sitting in a month or so that will have probably very large, global and geopolitical impact.

But I, you know, I look at the elections that we've had in emerging market space and in general, they've been pretty good outcomes for the market. Right? And they've been positive surprises, I would say.

I would go back to Turkey, which is an interesting one. We had elections last year, May ’23, general elections, Erdogan surprisingly won those. And then we had local elections in Turkey, in March this year, that's just gone. And the opposition won those. Right? And actually, the subtotal of the two elections has been, a much better economic policy adjustment than anyone expected.

I mean, in effect, Erdogan almost lost the May ‘23 elections. He knew it. And, the local elections that we just had, I think were essentially the population voted with their feet. They said, we hate inflation. You've got economic policy wrong. You need to adjust. And actually, Erdogan already got the writing on the wall from the general elections last year.

He adjusted policy. He hired Mehmet Simsek as finance minister. He cleaned out the central bank. Remember Turkey had a very unorthodox policy slant that created constant devaluation pressure, high inflation. What we’ve seen as a reversal of that, we've seen a massive increase in interest rates from 8.5% to 50%. We've seen tightening of fiscal policy. We've seen Turkey reach back out to key partners, particularly in the West.

Erdogan, interestingly, is in New York at the moment meeting investors trying to tell a story. Please come back, all is forgiven. We're going to do the right kind of things, right? And, you know, Turkish markets have outperformed last year. CDS as well rallied aggressively. You see numerous credit rating upgrades. Turkey's back, is a big liquid, market for investors to invest in.

That's good news. That's positive.

South Africa another one. This election was really interesting. I mean, everyone, the general consensus, was the ANC would do badly, would lose its majority, but it would still be able to run a coalition with some smaller minority parties. But essentially, the dominance of the ANC would still remain. Actually, what happened is the ANC did terribly, and it was forced to form a government of national unity with the main opposition party, the DA.

And this DA, ANC hook up with a number of other parties. It actually served to, enhance the position of, of Cyril Ramaphosa within the ANC. Cyril is a reformer, but he was held back by his own party. Within the ANC, there were many corrupt elements and old guard elements that didn't want to reform. By creating a broad coalition, Cyril Ramaphosa’s been able to jump forward or jump start the reform effort with the DA party.

And we are seeing really good progress now on a structural reform agenda. If you look at what's happening, Eskom, the energy company, Transnet, some of the deep structural reform problems in South Africa are now being resolved. The key issue crime and corruption. There's some, well, DA is taking a more active role in that. That's the problem of crime and corruption, overlay everything really in terms of the structural problems in South Africa, it's looking quite optimistic in terms of something's going to happen there.

I mean, numerous other elections that that have been kind of interesting. Sri Lanka, the election just happened over the weekend. A neo-Marxist won the presidential election. Front page of the FT. Shock, horror. Actually, Dissanayake, the guy who won the election looks to be fairly pragmatic, and he seems to be suggesting that the IMF program that has been in place for a couple of years and has been working and they've been working through a debt restructuring, that basically there's going to be some minor changes, but he's going to keep them on track.

And so ultimately that looks like reforms will be sustained. The country Sri Lanka, you know, we had a terrible obviously economic crisis a couple of years ago. You know, it's beginning to show the kind of, green shoots and recovery, and despite the fact you have a neo-Marxist as a new president, there's real optimism, I think that, you know, reforms can be sustained and, and the certainly light at the end of the tunnel there.

I mean, numerous other ones, actually, you know, Argentina, the Malay administration's addressing some of the deep-seated structural problems in Argentina, everyone knows about is heading in the right direction.

India is an interesting one because, I know India is a favored invest, investment location the French shoring, offshoring and beneficiary from that. And there's been, you know, confidence in Modi's dominant political position in the country. Actually, you know, what has concerned me about India is, is actually the overconcentration of power, the lack of checks and balances and the sort of social and ethnic issues in India, you know, the, the, the Hindu nationalist agenda that Modi's pushing, the concerns about, inter-ethnic conflict that may result from that.

I think the elections in India and the disappointing performance by Modi has provided a check and balance. Right. And I think it's provided some assurance that the unchecked some nationalist agenda that Modi has been rolling out, you know, maybe there needs to be a rethink. And I think ultimately that's good for long term reform and development in India. So even that election, I would argue, is has been relatively positive.

So, you know, across the EM spectrum, I would argue in general, elections have headed in the right direction in favor of reform. You know, there are exceptions, obviously, in Venezuela, you know, he's still, in a terrible position. No, no particular, hope from the elections that happened there.

But the other ones, I think in my mind, we're seeing positive political and policy adjustments as a result. And, you know, sign of hope, I think. The democracies that I would argue.

All right, well, let's, let's keep that good news going as we move on to, your outlook for emerging markets, because I know there's a lot of positive things going on right now, some good news stories out there.

So perhaps you could just cover off a couple of those positive themes that are shaping your outlook right now.

Yeah. Well, the war in Ukraine, well, the war in Ukraine initially led to, you know, lots of concern about, you know, energy and food price shocks for emerging markets. Right? Journalists don't often like to talk about the good news stories.

And actually, some of the consequences of the war in Ukraine have been positive for many emerging markets. Right? I mean, firstly, initially, obviously, oil and energy prices went higher. A large weight of the EM universe is oil and commodity producers. Middle East is an obvious one, Nigeria, etc. But actually, what we saw, even some of the energy importers were able to take advantage of the war in Ukraine, through the sanctions regime.

India is a classic case and example. You know, the West introduced, you know, sanctions on Russian energy exports interested in oil price cap. Russia has been trying to get around that. It's been forced to sell a lot of oil and energy prices to many emerging market countries. India is a good example. It probably benefited to the tune of around $40 billion, because of the sanctions regime in the oil price cap by being able to buy that, that cheap, cheap energy. And, many other countries benefited from, capital outflow from Russia.

Right? When sanctions were imposed, many Russians left the country. Lots of people tried to get their money out of, of the country. I would estimate capital flights out of Russia was probably something like $200 billion. Now, interestingly, if you look at, third party country balance of payments data, a lot of countries benefited from this cattle out from Russia through currency appreciation, increased reserves, actually, currency appreciation led to lower inflation and their ability to cut policy rates, which meant higher growth.

That group of countries is quite diverse. It's in Central Asia, it's in the southern Caucasus of Georgia, Armenia, Azerbaijan, Turkey and the Gulf states. These countries, you know, some of them have seen a transformation in the balance of payments, because of these capital outflows from Russia. Also, remittance outflows, for whatever reason, have improved their current account positions and allow them to increase their reserves.

So, there's a whole group of countries that are sitting nice and sitting quietly, not saying very much, that have been big winners from the world war in Ukraine.

Other positive angle, I'd say is, debt restructurings. You know, we came out of COVID, with a lot of countries in debt distress or near debt distress. It was a complicated situation because, historically, Paris Club were the main, main lenders to many, of emerging market countries that subsequently got into debt distress.

China, because the One Belt, One Road was the new lender to these countries. So, when it came to countries going into debt distress and thinking about restructurings, you had a new player, China, to negotiate with. And it's complicated a lot of those debt restructurings that have taken much longer than many people hope. But at last, we've seen, some of these key debt restructurings concluded through the Common Framework.

Ghana, Zambia, Suriname, also prior to that, Sri Lanka is on the point of being concluded and actually Ukraine, just a matter of a few weeks ago, we got an agreement on a significant debt restructure in Ukraine. So, you know, so finally, a lot of these countries that were stuck in no man's land, in terms of, being in default, with no prospect of coming out of default, are suddenly emerging from restructuring, which is positive.

There are a number of countries, interestingly, in that same period that decided not to go down the debt restructuring route, that decided to pay their debts and work through it; Pakistan, Egypt, Kenya is another example. And actually, if you look at the macro numbers from both Pakistan and Egypt, they've got through. They made the adjustment, they hiked policy rates, they tightened fiscal policy current account deficits and external financing requirements have been reduced. Both of those countries actually got, major donor support and significant IMF programs. But again, an adjustment happened that coming out of near debt distress situations and there's light at the end of the tunnel.

 And the final point around EM which is a positive, I guess, is, you know, if we think of the, the post-Covid sort of inflation spike, many of the big emerging market countries, the Brazil's, the Mexico's, have pretty credible, actually, central Europe as well, I should argue, are pretty credible central banks and orthodox central banks. They've responded by hiking policy rates much earlier than DM central banks and they began to see the benefits of that tighter policy earlier. So we've seen inflation falling. It's enabling those or enables some of those central banks to cut policy rates. We now have the fed coming to the party, with, you know, obviously a significant 50 basis point, basis point cut I mean, in general for emerging markets, a period where we have the fed in, in an easing cycle is a positive.

Now, if that's a soft landing, you know, if the US doesn't go into recession, but the Fed continues to cut rates because inflation is going to a sustained low level, that's a pretty decent kind of backdrop for many emerging markets.

All right. Well, thank you so much, Tim. This has been super insightful. I, I believe there's also some questions out there from our audience.

So I'm going to hand the reins over to Julian, just to cover the Q&A section.

Thank you. Haley.

So we've got quite a few questions here. Going to try to get through as many as we have. If you have more questions, feel free to throw them into the Q&A chat box there. So to kick things off now.

So last week we had a major macro event with the Fed cutting rates by 50 basis points. Next upcoming major macro event, the US election on November 5th. I was wondering what impacts could the upcoming US election have on emerging markets?

Well, I tend to think that the US elections that are much more important than the Fed, for emerging markets and globally. I mean, I portrayed a geopolitical image of, you know, let's be balanced and reasonable and calm about these issues.

I mean, US elections do worry me. In particular, the Trump presidency. A lot of those issues that I could suggest, could have relative benign outcomes, may not in the Trump presidency. I mean, obviously the Middle East is one of them. I worry about, you know, the Biden administration has been very eager to try and talk peace, you know, bring the various sides together and moderate.

I mean, clearly, there are elements in the Republican Party, that, you know, have long memories. You know, obviously, the Iran hostage situation, Hezbollah’s attack on US Marines, on the US embassy in Lebanon, and the US marine base as well. It's kind of unfinished business, Iran. And I worry that a Trump administration would not be able to constrain the hawks also in Israel.

And, you know, a second Trump term, would see, you know, escalation to an Iran /US conflict, which, you know, would have global, significant impact.

The other one is obviously Ukraine as well. I mean, obviously Trump has said he will end the war tomorrow by cutting off aid to Ukraine. I don't think he has a plan in reality. I don't think it's as easy as that. I think, if you look at, J.D. Vance's interview, I think last week around Ukraine, I mean, this idea of stopping the front lines where we are telling Ukraine, no NATO, giving Russia security guarantees, I think makes Europe, more vulnerable.

I mean, what it suggests might is right. Aggression wins. Go invade your neighbors and you keep the territory. And I'm not sure the Ukrainians themselves will accept that. I mean, imagine a scenario where, you know, Trump does win. He could self-supply military supplies to Ukraine or finance military supplies to Ukraine. Personally, will the Ukrainians stop fighting?

Well, do you trust Putin anyway to stop where he's at? And I don't think you can, because if you look at all the messaging from Putin is that Putin doesn't accept Ukraine's right to exist, he doesn't accept Ukraine's sovereignty. He doesn't think Ukrainians as separate ethnic groups to Russians. He will continue to push in Ukraine to take the whole of Ukraine. Now, what does that mean?

Ukrainians will not stop fighting. The war will be extended. You will still see, you know, tens of millions, probably, of Ukrainian migrants flee to Western Europe. And all the negative implications of a Russian victory in Ukraine that I highlighted early in this two-week scenario kind of wins. You know, you have to, I think what we've learned about Putin's red lines, is that Putin is a mafia boss that respects power.

You know, you need to show him that what he's done is unacceptable, that you're willing to provide the military backstop to Ukraine and give them weapons to stop Russia. And Putin only reflects force and power. And I think that's what the West needs to do. And I worry about really, Trump's lack of fundamental understanding about the issues around Russia, Ukraine.

Great. And we have a question from the audience related to that, because all regimes end, I was wondering at some point there will be a post-Putin Russian. How do you think that plays out Russia's relationship with the rest of the world once Putin is gone, either by old age, death or other circumstances?

Yeah. Well, I mean, it is very tempting to think that this is all about Putin, right? And that, you know, Putin's death, you know, Russians will reawaken, waken, and it will be like, you know, ‘91 again. Right? We have another chance.

I think, unfortunately, and Timothy Schneider, who's written some fantastic books on Russia, Ukraine and, you know, the Bloodlands is a wonderful book, it’s worth reading about Nazi and Soviet cleansing, extermination of populations in Belarusian Ukraine, definitely worth reading. And actually, Schneider makes the argument that actually, Russia has never got over its imperial past. It's still a colonizer. Russians still think they have a right to an empire, a sphere of influence. And actually, you know, Russians need to move on. It's a little bit like the UK. Remember, we had this problem in Eden, in Egypt, in the 1950s.

The UK realized that it couldn't sustain an imperial empire anymore. And we've moved on. Russia, , the Russians, I think, need to move on from that idea that they're a great power, with an imperial legacy, and they have a right to colonize other countries, which would suggest that actually, Russia needs to be defeated in Ukraine.

Now, let's imagine a scenario where, we wake up and Putin has been killed by someone within the regime. Let's say some of the security types Siloviki have decided they’ve had enough. They'd rather like to go back to their summerhouse in the south of France. They'd rather like access to the bank accounts in London again, etc. and we find out that Putin's been killed.

I think in that scenario, we're likely to see the West reach out to that new leadership. I think there will be an effort to reset. And I think that leadership will try and, you know, moderate tensions. But the underlying problem remains about Russians themselves. And this idea that you know, they have some colonial heritage that they want to sustain.

I mean, I think that's the difficulty. I mean, I started off in Soviet studies in the late 80s. I first went to Russia in ‘87 and Ukraine in ‘88. And I went through that whole period of perestroika, the collapse of the Warsaw Pact, the collapse of the Soviet Union ‘91 and that early, early post-Soviet period where there was a reopening, opening up and, free media.

And you know, what amazes me now is that Russians believe their own propaganda. Now, people who've been through a Soviet era where you were taught not to believe anything the state told you. Actually, Russians have been very accepting of that. And that's quite remarkable. Now, you know, there needs to be some, you know, reeducation, I guess, of the Russian population, you know, to learn that, you know, they don't have a colonial right to Ukraine and other countries in the near abroad.

And, you know, I mean, if we go back, you know, to 2014, 2013-2014 when you could argue this conflict began, I always think that that that decision by Putin to annex Crimea and then intervene in Donbas, you know, Putin would have been much better showing the Ukrainians love the war, right? If you'd have written big checks and said, go away and have your dalliance with the European Union, you'll be disappointed and you'll come back to me.

Actually, the fact that he showed Ukrainians war means that he's lost Ukraine forever, right? I mean, I think there's no going back to the Russians and Ukrainians because Ukraine will never forgive, I think what Russia has done in Ukraine, even those in eastern Ukraine that spoke Russian, lean towards Moscow, voted for pro-Russian parties historically, I think the fact that the cities of Kharkiv and so many and, Mariupol have been destroyed by Russian artillery, you know, those, those pro-Russian, Russian speaking, ethnically Russian, they’ve suffered the worst fates, means there's no way back for that relationship.

Interesting. And that question came from Victor Samuel, the next one’s from Joe Zhao, somewhat analogous, but on China. He's got a few questions with respect to China, US, the tension that's happening there. What do you think is the root cause of that?

Is it value destroying with respect to global wealth? And lastly, do you see any bright side or potential opportunities around the tensions between the US and China?

Look, I mean, you know, you could argue it's, you know, the US has been a unipolar power used to its overwhelming hegemony and, and China is a rising power that's challenging it, you know.

So, the problem is both with the US, and in a way, with China. I mean, you know, what's wrong with the relationship? I mean, I guess the reality is, you know, the West thought that, you know, welcoming China into the multilateral, globalized world would be a win-win, that China would end up like us.

And I think, I guess, the reality is, we opened up our markets, our foreign multinational companies relocated to China, they closed all the factories in the west, they took the windfall profits from the China trade, and I guess the end result has been we have lost, a lot of our manufacturing base to China, through unfair competition, an undervalued exchange rate, seen through the massive accumulation of FX reserves, and, you know, all this is ended up where we are with populism and MAGA, and tariffs and all that kind of thing.

So, it clearly needs to be a reset in the relationship. I guess both sides are disappointed with where we are. I guess, you know, I mean, what's kind of interesting for me is, the tariff story. I mean, actually, I would have argued that China's economic hegemony was inevitable. Right? It's a sense, you know, the fact that China had, you know, centralized economic planning, huge FX reserve buffers, the Chinese kind of thought long term, joined up thinking in terms of economic policy, and they had resources, and they didn't make mistakes.

Right? And so, it wasn't. Whereas Western liberal market democracies, you know, decision making is more difficult, this competition between the countries, we tend to get involved in wars which have been generally, well, subtracting, particularly in the US. What's interesting is the imposition of, tariffs on China. This idea of trade wars between the US and China, I think for the first time has seen policy mistakes by the Chinese.

Right? We see the over-concentration of power around Xi, a lack of checks and balances, huge you know, we've seen a move to Fortress China economic settings, which has been talk about deleveraging. And we see mistakes in real estate, in sort of education, all these kind of areas. And I think, you know, the trade wars from a US perspective is successful because it's introduced self-doubt in China itself.

And you know, the Chinese model I don't think it's no longer inevitable that China reaches economic hegemony with the US. Now, I would argue that, there was less of a chance of a Chinese intervention in Taiwan as long as China thought it was winning the long game. As long as, through globalization, global trade, multilateralism, that it could ultimately beat the Americans in terms of economic hegemony.

You know, there was no need to, you know, ultimately China would end up subsuming Taiwan. Right? You could argue that the China that we see today with this lack of checks and balances around Xi, policy mistakes from Xi, etc., that, you know, China might fail economically. And in that situation, I think the risks of Xi reaching out for a gunboat diplomacy kind of win in terms of foreign affairs is higher.

He may then make the mistake of thinking there is a military solution in Taiwan. Now, you know, that's some way ahead. But, you know, this this is a complicated relationship. We're in a better place than I think we were in the early Biden administration. We faced a Trump administration, possibly, that has a lot of real hawks on China.

You know, more tariffs. You know, how is China going to react to that. And, you know, China is now obviously globally systemic for the global economy. You know, if the Chinese react with policy mistakes that caused systemic crises in China, that's a global crisis for everyone.

Well thanks to Tim. We have a lot more questions coming out of the audience unfortunately, we can't answer them all, so thank you for taking us through that Q&A period. Now I will pass along to Poppy at CFA Society Ottawa for closing remarks.

Thank you, Julian, and thank you, Tim and Haley for such an insightful discussion today.

I think we all walk away with a deeper understanding of the complexities surrounding geopolitics and emerging markets. One key point that stands out to me is how unpredictable the geopolitical landscape can be, and the ripple effect it has on emerging markets. It's clear that staying adaptable is essential in navigating these complexities.

To summarize some key takeaways. First, the world is experiencing quite a bit of geopolitical uncertainty, which  will definitely have impact on investment markets, particularly emerging markets.

Secondly, while there are many negative headlines, it's not all bad news. Many elections have resulted in favorable results that should benefit their local markets. Inflation across EM markets seem to be under control, allowing countries to embark on rate cuts and outlook for EM markets seems to be gradually improving. Particularly, we're seeing opportunities in markets, or countries such as India, Indonesia, Brazil and Mexico.

These markets show promising signs of stability and growth, supported by favorable election outcomes and improving inflation. Within the context of a fully diversified investment portfolio Emerging markets play a key role as, you get access to high growth countries comprising a large component of global GDP.

However, these countries do tend to be a bit more sensitive to, geopolitical risk so it's critical, important to choose to work with a team who has a hands-on experience in the EM space and are true experts in the countries they’re investing in. We'll be following up tomorrow with a brief survey. Please take a few minutes to let us know how we did today and what other presentation topics will be relevant and useful to you.

Once again, we acknowledge our annual sponsor, RBC Global Asset Management, PH&N Institutional and CFA Society Vancouver and Calgary for their collaboration. Our societies look forward to bringing you more presentations in-person and online too, so stay tuned. Thank you so much for joining us today. Thank you.