Kyle BassRussia’s unprovoked war on Ukraine is not a deathblow to globalization but should be a wake-up call to the risks of investing in countries that are not democracies, Texas hedge fund manager Kyle Bass told CNBC on Thursday.
“You don’t have to paint it that broadly,” the founder of Hayman Capital Management told “Squawk Box” in an interview when asked if he thought the idea of a networked economy with few barriers to impede world trade was practically over. “It has to be said that any country that might be run by a despotic authoritarian should be re-examined and perhaps not invested in.”
“It has to be said that any country that might be run by a despotic authoritarian should be re-examined and perhaps not invested in.”
Founder of Hayman Capital
Bass, a harsh critic of the Chinese Communist Party, commented a week after BlackRock CEO Larry Fink wrote in a letter to shareholders that Russia’s invasion of Ukraine “has put an end to the globalization we see in the experienced in the last three decades”.
Economic isolation of Russia
Russia has faced rapid and severe economic setbacks since late last month, when Russian President Vladimir Putin launched a full-scale military attack on neighboring Ukraine. In addition to government sanctions against Russian officials, financial institutions and oligarchs, hundreds of Western companies have suspended operations in the country.
What was once the 11th largest economy in the world is expected to contract sharply and enter recession in response to the West’s economic isolation. The Institute of International Finance estimates that Russia’s economy could shrink by 15% this year.
China tries to appear neutral
China has not officially condemned Russia’s invasion of Ukraine, and US officials have warned Beijing that it would face “consequences” if it offered assistance to Russia. European Union leaders will meet with senior Chinese officials, including President Xi Jinping, on Friday. They are supposed to put pressure on China to remain neutral in the war.
“I think the fiduciary responsibility of institutional investors needs to be exposed because anyone who invests in Russia has just lost everything,” Bass said. “China is on a knife edge. … If they make the wrong decision of openly siding with Russia here and submitting to US sanctions, then all US investments in China are suspect.”
Read more about CNBC’s political coverage:
China has become an important market for many American companies in decent decades, Bass noted, as it grew to become the world’s second-largest economy. It is not only an important link in global supply chains, but also an important consumer market.
Putin’s war is a lesson for China
But Bass said the difference between US defense and intelligence officials’ view of China versus Wall Street’s view “has never been greater.”
“At the end of what Putin just taught, we need to look at the despotic autocrats and really reconsider whether the negative convexity — or negative risk — that we associate with these prospective countries is worth the investment,” Bass said.
What Putin just taught is that we have to look at the despotic autocrats and we really have to reconsider the negative convexity.
Founder of Hayman Capital
Bass said he’s long believed the US and China would eventually grow apart economically because the fundamentals of the two countries are “so diametrically opposed.”
“What Putin did only accelerated it. I think in the next year or two we’ll see if it was really worth taking that risk. I think the people who took those risks will realize that it’s “not worth it,” he said.