So let's talk about emerging markets. The travails of China have rippled through the global economy, especially some of the smaller countries. Can you talk about that a bit?
Because China buys a lot from a lot of small countries, as China has slowed down, so have some of their suppliers, so to speak. And so nations that provide them with raw materials like commodities, or nations that supply them with energy, or nations that have work in process that ultimately gets delivered to China have been most impaired.
When things like this happen, financial markets are not always helpful. Sometimes they seem to make things worse. What's your take on the reaction of the markets?
For reasons that I can't completely explain, sometimes markets tend to think, if there's a problem in one emerging market, there'll be a problem in all emerging markets. And so what you'll find is that the currencies of a lot of different countries will begin to depreciate because investors just don't want that type of risk in their portfolios. So as their currency declines, then capital leaves those countries. That actually can make the situation worse. In fact, the investor reaction can, in that way, become a self-fulfilling prophecy.
So what are the key differences between economies that will be resilient in the face of these struggles, and those that are more vulnerable?
So we look for several things. Number one, the country should have what I would call a good business mix, meaning that they're not overly reliant on one country to do well in order to supply them with exports. They should be diversified across products and services. They should keep their debt under control, and in particular, they should never borrow in a currency that's not their own.
They should have reserves to buffer against the potential for volatility. And by all means, they should avoid corruption because that is an element that turns investors away, right out of hand.
So when you look across the world, what are a few specific examples of well-positioned countries and those that are somewhat worrisome?
On the good end, I would say India continues to do fairly well. They export more services than goods. They import a lot of energy, so low energy prices have been beneficial. And they seem to have the right touch with their policies.
South Korea, as well, is doing very well. Even though they've had a lot of currency competition in their region, their brand name recognition for some of their products is very, very strong.
On the other end of the spectrum, I'd have to name Brazil, which is very dependent on commodities, doesn't have a good mix of policies, and has a fairly large corruption scandal surrounding its president. And the same is true of Malaysia, which has a lot of business with China. And again, there there's a little bit of a scandal over some sovereign wealth monies that apparently did not go well-accounted for.