Emerging Markets: The Wrath of Three Titans
We, the citizens of emerging markets, stand against the gods of probability, yet it's technology that has the power to shift the odds.
Emerging markets, they are the new frontier, a vibrant and charged arena where humanity surges forth. Outside of China, more than 4.1 billion souls find their home in these markets, forming the world's largest collective commercial body.
Those of us born in these emerging markets navigate a course seemingly charted by the fury of titans and Olympian deities. From our first breath, we are pitted against two formidable adversaries: currency crises and inflation.
Currency crises, the first titan, mercilessly sweep away any potential for wealth creation. During the 80s, 90s, and then again since 2014, they act like a voracious inferno, consuming any wealth accumulation efforts. Picture holding a million in savings in any currency, then two years later, watching it dwindle to half its value, or even more terrifying, as witnessed recently in Turkey and Argentina, to a paltry 2%.
US real interest rates. Source: St Louis Federal Reserve
These currency crises are fundamentally crises of trust. When the economic Olympus quakes, and liquidity drains, that is, when the real interest rates in the United States tip into positive territory, citizens burdened by reckless fiscal policies, political turmoil, and compromised central bank independence, find themselves on the receiving end of this first titan's wrath.
The second titan, inflation, is more stealthy. It may seem absent for long stretches of time, only to rise ominously, gnawing away at our purchasing power over the course of decades. The root of the problem is identical: eroded confidence in the government and consequently, in the value of money. In the end, fiat money becomes merely a promise, a proclamation of trust.
Yet, not all titans are foes. Just as Prometheus defied the gods to bestow the gift of fire upon humanity, so too are entities like Tesla and a host of other enterprises in emerging markets lighting up a monumental technological revolution. This Promethean flame of innovation is not confined to Silicon Valley. It is spreading, glowing brightly in lands such as Vietnam, Mexico, Poland, India, and Saudi Arabia.
Vietnam Exports. Source: Observatory of economic complexity. MIT
When we talk about Artificial Intelligence, processing power is vital, but it is not the be-all and end-all. The real game-changer is the massive pool of 4.1 billion users contributing to the ocean of data, which is indispensable for the training of these sophisticated algorithms. In the final analysis, technology is not just about machines and code; it's about amplifying human potential, about harnessing the creativity and ingenuity of billions.
Hence, we stand in the shadow of three titans. Two, the currency crises and inflation, menacingly threaten to obliterate all avenues for wealth creation. Yet the third, technology, holds the promise of a radiant future.
Thanks for reading,
Guillermo Valencia A
Co-founder Scale & Macrowise
Brazil, August 6th 2023