Don’t Worry About Asia or China. Do Worry About Saudis and Mideast: Ian Bremmer

The bemused markets observer suggests shorting Europe; no Brexit but maybe a Grexit, and sees possibility for more states to fail in Middle East

Speaking to more than 700 attendees at IMCA’s annual consultants conference in New York on Monday, Ian Bremmer provided a good news/bad news perspective as he assessed the political atmosphere around the world, with a couple of investment suggestions thrown in for good measure.

The founder and president of the Eurasia Group — and prolific writer on geopolitical and economic trends — started with the big picture, saying that for the first time since the end of World War II, we are now in a position where “globalization and Americanization are not the same thing.” The U.S.-European relationship is at its weakest point since the end of WWII, Bremmer said, and filling the void is China. Even the U.K. is forming a new “special relationship” with the Chinese, he said.

Bremmer foresees a “profound unwinding of the geopolitical order,” which will “hurt Europe and destroy the Middle East. As a result, the U.S. will need to “start thinking about” finding, and engaging with, “the cleanest dirty shirts” in the geopolitical sphere. Beset by the refugee crisis and flat growth, he suggested shorting Europe.

“Brexit wont happen,” Bremmer predicted, referring to the possibility of the U.K. leaving the E.U., though “it will scare people,” presenting a “buying opportunity.” However, with Greece’s resources strained by refugees from Syria and other countries in the Middle East, “the chances of a Grexit are higher now.”

Focusing on the Middle East, Bremmer said that Saudi Arabia was “increasingly isolated,” and said he worries that with discontented young men in the kingdom, “what’s holding Saudi Arabia together?” The Israeli-Palestinian issue is far down on the priority list of nations in the area and in Europe, partly because Israel no longer has to rely on Palestinian labor, and also because Israel’s Iron Dome missile protection system is “incredibly effective.”

While it might be “hard for us to hear,” he said “America is now a marginal player in the Middle East.”

The good news for Bremmer is that the major Asian nations — China, Japan, India and even Indonesia — are being guided by strong leaders with sufficient popularity and political strength to focus on longer-term economic policies. “Don’t worry about a hard landing in China,” he said, since the Chinese leadership has the tools to continue to grow the economy. He’s not worried about China’s bellicose language over its artificial islands in the South China Sea, since that language has been offset by the Chinese leadership’s diplomatic outreach to Japan, South Korea and even Taiwan. “I think India will outperform,” he said, especially in the western part of the country where Prime Minister Narenda Modi’s Bharatiya Janata Party is strong — similar to the economic growth in his home state of Gujarat.

While he jokingly noted that “Russia is not a happy place,” it may “do better” economically this year as the international community’s sanctions against the country are lifted. Russia as an investment reflects the challenge among the emerging markets, which he pointedly said is “not an asset class,” but where investment opportunities must be carefully investigated.

Having just returned from the Davos economic summit in Switzerland, Bremmer reported that the major theme there was the “fourth industrial revolution” which he said “will change everything” and whose repercussions on the negative end will be felt most deeply by the emerging market nations. With their economic growth, those nations will fall prey to the “middle-class trap,” where increased incomes will lead the populations to expect more of their governments, which will find it difficult to meet those needs. “States will fail” in the future, he fears, as many jobs will be automated.

He cited an Oxford University study that looked at 720 job titles and concluded that 47% of those jobs would be automated over the next 10 years. That won’t be such a large problem for the U.S. — “I think we can get through it” — but he “doesn’t know about EM countries; the vast majority will be more brittle” socially as automation proceeds.

When asked by an audience member who he will vote for in the U.S. presidential election, Bremmer demurred, though he did say that Michael Bloomberg is “pretty likely to run.” He also counseled not to to be “overly concerned with 2017,” regardless of who is elected president.

--- Check out Roubini and Bremmer Warn of ‘New Abnormal’ on ThinkAdvisor.

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