In future, Morgan Stanley’s head of emerging markets implies banking recruitment will happen here, here and here
If you’re prepared to migrate internationally in search of work, you may need to look beyond the standard options.
As we’ve been reiterating in recent days, places like Singapore and Hong Kong aren’t the safety nets they were for bankers losing their jobs in London. Banks are cutting costs there too. There’s still hiring, but a lot less of it.
Fortunately, therefore, Ruchir Sharma, Morgan Stanley’s head of emerging market equities, has written a book (Breakout Nations) full of insights about which countries are most likely to experience significant economic growth in the years to come. Sharma's not suggesting that these are places where banking jobs will be created specifically, but given the multiplier effect (identified by Goldman Sachs) between GDP growth and investment banking revenue growth, economic expansion can be seen as forward indicator of investment banking job creation.
Why it won’t be China and it won’t be Brazil
Sharma isn’t a big fan of China. Nor is he a big back-slapper for Brazil.
China’s economy is maturing, says Sharma. It’s grown on the back of a lot of big infrastructure projects and a demographic bubble. Now, he argues,Chinese inflation is rising, Chinese workers are demanding higher wages, and China's debt as a share of GDP is rising fast. China’s export-led economy will struggle now that the West’s consumption engine is spluttering and China has no consuming force of its own, the ruling dynasty set up by Deng Xiaoping – the economic pragmatist – is coming to an end
Low wages in China were driven by Chinese two post war baby boom generations, says Sharma. There was a first baby boom in the late 1950s after the end of the great famine. And there was a second baby boom in the late 1960s-early 1970s, encouraged by Mao Zedong’s belief that having lots of children would be good for China’s military potential. In 1979, China’s one child policy came into effect. China’s cheap labour advantage was therefore a passing phase.
It’s not that China’s going to collapse, says Sharma, it’s just that it’s not going to grow as quickly as people think.
The same goes for Brazil: “Brazil’s economy is just as badly out of balance [as China's],” says Sharma. “Though in opposite ways.”
Therefore, while China has been vigorously opening its economy for decades, Brazil has been closing itself off. While China has failed to build much of a welfare state, Brazil has built one that it can’t really afford. Brazil has failed to invest in infrastructure like roads and has failed to train its workforce. Yes, Brazil is commodity-rich, but its commodities boom has inflated the real and inhibited manufacturing. Brazil has a trade deficit has a result.
It won’t be Russia
Nor will Russia be the next big growth country, says Sharma. Yes, Russian banks like VTB and Sberbank have been expanding. Yes, Russia is resource rich, and the government is planning a big privatisation programme, but outside of oil he says the Russian economy has stalled. There are very few small, dynamic entrepreneurial firms: Russia is a country of “state behemoths and mom and pop shops you’ve never heard of.” On top of this, the population is ageing faster than anywhere else in the emerging world and Sharma says there’s a criminalization of politics and a deepening of ties between government and business.
It might be Turkey
By comparison, Sharma says Turkey looks like a good bet. As we noted earlier this year, banks – especially Russian banks - seem to be expanding there, as are private equity funds like Carlyle.
Turkey is investing heavily in infrastructure, says Sharma. Its economy has performed unusually well since 2008, it’s young population is comparatively free of household debt, and the government – led by moderate Muslim Recep Erdogan – is comparatively stable.
It might be Poland
Both Credit Suisse and UBS have big back office businesses in Poland. Credit Suisse is in Wroclaw, where it runs a ‘centre of excellence’ devoted to payment processing, fund administration, publishing, design, legal and compliance, and information technology. UBS has a service centre in Zabierzow. Both banks have been big hirers for both centres.
If Sharma’s right, Poland may become a source of front office investment banking growth in future. He points out that its economy is largely debt free, that it has a talented workforce, a growing cadre of small to medium sized companies, including consumer companies, and that the employment rate is falling.
Poland is the “sweet spot” of Europe, he argues.
It will be South Korea
However, Sharma’s favourite country of the future is South Korea.
“South Korea is coming out of Japan’s shadow and redefining the limits of what is possible for a manufacturing powerhouse,” says Sharma. Large companies owned by family dynasties which were once seen as at the heart of crony capitalism are reforming. Korea lacks a strong service sector, but has a very strong export-focused manufacturing economy.
Sharma describes Korea as the, “Germany of Asia.” Manufacturing accounts for 31% of GDP, up from 26% five years ago and Korea is moving beyond its traditional strength in cars and steel to focus on industrial machinery, robotics, aerospace, biotech, rechargeable batteries and material science.
Sharma points to Korean GDP growth of over 4%. According to the Goldman Sachs multiplier, this will generate investment banking revenue growth of 6.8%. Yesterday, Mervyn King predicted UK GDP growth of 0%. If you can, now may be the time to look for a job elsewhere.