Ian Bremmer Sees ‘Geopolitical Recession’ Ending
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The world is emerging from a recession, foreign affairs Ian Bremmer said, though not necessarily of the economic variety.
The Eurasia Group think tank founder told the audience at the Exchange conference in Miami Beach, Florida on Monday that as we come out of the current “geopolitical recession,” new global institutions are coming about.
Geopolitical recession happens when institutions and alliances—such as the World Trade Organization, the International Monetary Fund and the United Nations Security Council—that have brought order to global interactions start to break down, he said.
“When the balance of power shifts so much that it's no longer aligned with those institutions, and therefore the institutions start to break, you get a geopolitical recession. In response, you get a lot of geopolitical crises,” he said.
“In response to the crises, you finally start adapting or creating new institutions, which allows you a new boom cycle. That's where we are right now,” Bremmer added.
This new boom cycle is confronted by an abundance of challenges. Russia’s Vladimir Putin and Iran’s Ali Khamenei are examples of powerful leaders surrounded by “yes men” who are getting poor information and have no significant checks and balances on their ambitions. Russia’s invasion of Ukraine was “the biggest miscalculation of a major leader on the global stage since the wall came down.”
“In this global environment we presently have, we are dealing with a stronger group, a more disruptive group of rogue actors outside of traditional geopolitical norms and institutions—but with the ability to be massively disruptive in what they do, a stronger group of those rogue actors than at any point in our memories, in our lifetimes,” Bremmer added.
While globalization continues, it’s “adrift,” with episodes of tactical protectionism, he said: “It’s globalization no longer being driven by any country or countries. As a consequence, the markets are no longer expecting the kind of increased efficiencies that come from that greater tension,”
Bright Spots, Possible Struggles
The Columbia University professor, who earned his political science doctorate from Stanford University, said post-zero-COVID China offers investors opportunities.
“I'm very bullish on the Chinese economy for the next nine months, but they're going to be facing major headwinds,” he said during a question and answer session. He cited the country’s unfavorable demographics, its “massive but not performing” corporate debt, its lowered productivity and the U.S. gaining an edge in the semiconductor competition.
Right now, the largest ETF to cover China is the $9.4 billion iShares MSCI China ETF (MCHI). According to Morningstar, the fund was down nearly 23% last year, but is up more than 9% year to date in 2023. The fund represents a broad approach to the Chinese market, with more than 500 holdings.
India is another area where Bremmer sees potential due to its high level of spending to support digital infrastructure, favorable demographics, political stability and investments from Western technology companies. However, he also noted India is disproportionately affected by climate change, and it’s one of the serious headwinds faced by the country.
“India has been able to maintain their fiscal expenditures at rough parity in the last 10 years, but it massively increased the amount of that money that actually gets to the Indian people,” he said. “No other country in the world has the space of inefficiency and corruption that they've been able to cut out in a short period of time through technology.”
The largest ETF covering India is the $4.8 billion iShares MSCI India ETF (INDA). That fund fell roughly 9% in 2022, and is down 4.1% in 2023.
Bremmer’s also bullish on the U.S. given the spending on industry introduced by recent legislation, and on the European Union, which has only grown in strength in the wake of Brexit (he notes that 60%-65% of British citizens regret Brexit).
While the $288.8 billion Vanguard Total Market ETF (VTI) is up almost 8% in 2023, it fell 19.5% last year. And the $2.4 billion SPDR Euro STOXX 50 ETF (FEZ), which was down 14.3% in 2022, is up almost 12% this year.
Contact Heather Bell at heather.bell@etf.com
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