Economics & Growth | Emerging Markets | Global | Politics & Geopolitics
This is an edited transcript of our podcast episode with Timothy Ash, published 24 February 2023. Timothy is a Senior EM Sovereign Strategist at the $125bn fund, BlueBay, and is widely considered one of the leading experts on Ukraine and Russia. Prior to joining BlueBay, Tim was Head of CEEMEA Credit Strategy at Nomura International. Before this he was Head of EM Research (ex-Africa) at ICBC-Standard Bank until May 2015; Head of Emerging Markets Research at the Royal Bank of Scotland until June 2012; and Head of EMEA fixed income research at Bear Stearns International (later JPMorgan Chase) until April 2008. In this podcast, we discuss what caused the collapse of the Soviet Union, why Russia didn’t have a quick victory against Ukraine, Putin’s goal of a frozen conflict, and much more. While we have tried to make the transcript as accurate as possible, if you do notice any errors, let me know by email.
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Now onto this episode’s guest, Timothy Ash. For background, Tim is a senior EM sovereign strategist at the $125 billion fund BlueBay. Before this role, Tim was the head of senior credit strategy at Nomura. And before Nomura, he held head of EM research roles at ICBC-Standard Bank, RBC and Bear Sterns International, and later JP Morgan.
I should add that Tim has been following Ukraine and Russia for decades and is widely viewed as one of the leading strategists for the regions. Now onto the podcast. So greetings, Tim. It’s great to have you on the podcast, as always.
Timothy Ash (01:18):
Yeah, my pleasure. Great to be here.
Bilal Hafeez (01:20):
Now before we go into the meat of our conversation, I did want to ask you something about your origin story. What did you study at university? Was it inevitable you would end up in finance? And something about your career journey up until now.
Timothy Ash (01:33):
Yeah, sure. Well, I’m pretty boring. And yeah, economics, Manchester University. I went there because the course was very broad, very big, and makes lots of interesting choices. And actually interesting that a lot of their stuff was comparative economics. This was like mid-eighties, and it was things like looking at centrally planned economies and China in those days, and I just liked the freedom really.
Well, I’m still on a fairly left leaning. I was interested in the Soviet Union and centrally planned economies and stuff like that. And I did a master’s, actually. And in those days, the UK ministry of agriculture were giving lots of postgrad stuff for people to do MAs in agricultural economics.
So I actually did that, I did a study of technological change in Soviet agriculture, so I was linking a few things. And that gave me a window, interestingly, into or an opportunity… Because I did that, then I got on a project at Exeter University. There was a couple of guys doing some really interesting stuff, looking at… In the Soviet period, this was late eighties. A couple of guys down there looking at technological change in Soviet agriculture. So we had a Leverhulme project looking at these weird things called science production associations in the Soviet Union.
That was the angle into Canada, Russia and Ukraine and stuff. And from there, actually I did that for two years and then did a couple years… Well, the Soviet Union collapsed.
Bilal Hafeez (02:57):
So I heard.
Timothy Ash (03:01):
Yeah. Yeah. I spent a lot of time in the Soviet Union in those days travelling around with various research institutes in the Soviet Union at the time of the collapse. We were watching it happen. It’s interesting. It happened. And then obviously, the communist block collapsed ’89 as well during that period.
What Caused the Collapse of the Soviet Union?
Bilal Hafeez (03:22):
And just as a side note, this is a big topic. But what do you think was the cause of the collapse of the Soviet Union? There’s one view which is under Reagan, you had this military buildup, arms racing. It bankrupt the Soviet Union.
Another is there’s a commodity angle. Oil prices crashed in the eighties, and then that led to the collapse. And then there’s other theories as well. Do you have a pet theory on what caused the collapse?
Timothy Ash (03:44):
Well, I tend at the moment to link it into what’s going on in Ukraine. I would argue that it was the intention in Afghanistan in the late eighties, which is linked to that.
Obviously Soviet Union over extended itself, ended up in this arms race. It’s underlined the inefficiencies in the Soviet system, ultimately. They were in an arms race they simply couldn’t win.
And then you obviously ended up in with perestroika… If you remember couple of Soviet presidents dying in short succession and then Gorbachev turning up, having that period of perestroika, attempts at reform in a union of 15 republics that really wasn’t working. And obviously, the centrifugal forces and all that kind of gig.
Incredibly interesting period. And then just to finish off, I then went to Herriot-Watt and worked on transition. Transition from plant to market. Because by that time, there was a transition happening, so it’s interesting. So I don’t know, I just fell into a lot of things by chance, by luck. I guess often people’s careers end up like that. Right?
Bilal Hafeez (04:48):
But it sounds almost like you were going down almost an academic route. Or maybe you could have gone on a policy route, but then you somehow ended up in the financial industry.
Timothy Ash (04:56):
Yeah. Yes, I did. I started off definitely in the academic route. From that four years of postgrad, I then did a couple of years as a development consultant in transition.
I worked a year in Ukraine, in Bila Tserkva, a place south of Kiev on a restructuring for the European Union, which is an interesting job.
I worked for the Economist Intelligence Unit doing the macro forecast, and then I ended up at the IU on a full-time basis after a year in Ukraine. And at the IU, you’re either a lifer at the IU doing long-term macro because you’re either there forever or you end up two years, and then go to banking. In the end, that’s what I did.
There’s obviously a lot of demand in that period for people who experience transition economies. And I don’t know, I just made the leap then into banking, and I was there for 20-odd years, I guess.
Why Russia Did Not Have a Quick Victory Against Ukraine?
Bilal Hafeez (05:47):
Yeah. And you’ve become, obviously, an expert in emerging markets and specifically, obviously, in the former Soviet bloc, you could say. If we fast-forward, obviously, to the topic of the day, which is the Russian invasion of Ukraine.
It’s been going on for, I guess, a year now. Depends on how you date it. It’s been going on for many years before that. But the current hot war, you could say, or the aggressive action was a year on. So what’s your latest take on the conflict?
Timothy Ash (06:15):
Well, look, the conflict has been pretty unpredictable. I think we had a conversation maybe obviously a year ago. Some people predicted it would happen. I was one of those.
But we all thought it would be over fairly quickly. No one imagined the incompetence of Russia’s invasion, and the brilliance and bravery of Ukraine’s defence. And actually, the unity of the West as well. So there’s been many surprises along the way.
A conclusion now I’ve reached and I’ve had it for some time is, I just don’t see a path to Russian victory. He’s already lost in so many respects. He’s lost Ukraine permanently, any pro-Russian supporters in… There’s not many left.
I speak to a lot of people, Ukrainians, first language Russian, who historically probably were somewhat inclined towards Moscow. And they tell me now that they’re all now speaking Ukrainian. So he’s lost Ukraine. There’s no way back. Ukrainians will never forgive him.
Even already the defeat conventionally for the Russian military has been staggering. The sheer amount of capacity that has been taken out by the Ukrainians, probably half Russia’s conventional capability.
Bilal Hafeez (07:37):
You said you were surprised by this before. Now looking back, was it obvious that the Russian military was weaker than it first appeared? Or is it you just don’t know until you see a war start?
Timothy Ash (07:51):
Well, I guess you do. Mike Kaufman, great analysts of the… Battle plans never survived the first point of conflict. It’s often what military guys say. Look, I thought Russia would play to its advantages straight away, which would be overwhelming use of air power, missiles, artillery, and concentrated on Ukraine’s concentrations in the East.
And I thought facing huge casualties, the government in Kiev would be forced to concede. And actually talking to people in Kiev around that time, before and after the actual invasion, generally they agreed. They concluded that.
And the fact that Russia didn’t do that, the fact that it didn’t play to its advantage, hardly used air power so far, is extraordinary. And it was badly planned. Poor tactics. Haphazard.
I think actually for me, what actually happened is more reflective of the problem Russia has with Ukraine. In its conduct of the invasion, the Russians didn’t take Ukraine seriously. Well, they don’t take Ukraine serious as a state. They didn’t take Ukrainians serious as a people.
You look at Putin’s essay that he wrote in mid ’21 prior to the invasion. And I just thought, they just honestly thought that the Ukrainians wouldn’t fight and they’d welcomed them. And the stories of the first columns that moved in had their dress wear, the ceremonial kits with them. It was extraordinary.
So again, my long experience, I went to Kiev first time in ’88. I’ve probably been hundreds of times to Kiev, lived in the place for a year. The Russians just can’t be bothered. The Kremlin can’t be bothered to really understand Ukraine.
They think they get Ukrainians, but they absolutely don’t. And it’s been proven. And it’s fortunate that they couldn’t be bothered to understand Ukraine. They can’t be bothered because essentially, again, they don’t see Ukraine as a proper state.
They don’t see Ukrainians as a proper identity. They look down at them as country bumpkin Russians, which they’re absolutely not. And thank God now with hindsight that they made such a terrible mistake.
And I don’t think it’s really changed. So at this point in time, I don’t see militarily how Russia can take a significant amount of Ukrainian territory or significantly more and hold it.
They’ve mobilised half a million troops. Supposedly, there’s now half a million troops in Ukraine or around Ukraine. This auto mobilisation and this offensive that’s ongoing at the moment.
And despite that, they don’t seem to be making any significant inroads. And again, Ukraine is a huge country; 40 million people. Look at the map. 500,000 troops is not enough, again, to take and hold a significant amount of Ukraine territory.
Bilal Hafeez (10:38):
And you mentioned, air power. Why haven’t they used more air power? As soon as they realise it wasn’t a quick victory, why didn’t they then deploy the Air Force and just aggressively carpet-bomb the country or something?
Timothy Ash (10:51):
Well, again, extraordinary. It’s crap, it’s not actually what it’s made out to be. I think it was just bad planning initially. And now they’ve missed the opportunity because now Ukraine has some significant air defence capabilities.
And if Russia was to deploy whatever it’s got left… The numbers seem to suggest they’ve probably lost something like 15% of their airplanes or their air power. They could still deploy it, but I think Ukrainian air defences now are fairly significant.
So I would imagine that if they deployed their air power now, they would suffer the same fate as their army and their navy, in terms of a humiliating performance, basically.
Putin Wants a Frozen Conflict
Bilal Hafeez (11:33):
What about a path to an end here? So you’re saying, obviously, Russia captured a part of eastern Ukraine, they’re not making additional ground. Ukrainians themselves have said they want to remove Russia from all parts of historic Ukraine. So will this just be an endless war where both hold onto what they have and there’s no resolution? How can you have a resolution here?
Timothy Ash (11:57):
Yeah. Well, Putin would love a frozen conflict from here, that he keeps what he has. He could sell that as a victory. That’s what he would like. Obviously, the Ukrainians don’t want that. They know that he will keep whatever he has, as long as there’s a frozen conflict.
They have an interest in continuing this conflict to retake that territory. I think they can. I think the problem for Putin is that the longer it goes on, the more and better equipment the Ukrainians will get.
So Russia, even if it mobilises more troops, it presents more poorly trained, poorly armed troops stocking various places in Donbas and the southern land corridor.
And the Ukrainians have good visibility, in terms of their ability to see Russian troop deployments with Western intelligence, ever more sophisticated kit that they can selectively pick off those troop formations and ammunition supplies and all that. So I just don’t see how it gets any better for Russia.
And unless he goes for total… With total wartime economy, mass mobilisation. Millions in the Army. A guns versus butter scenario. And I’m not sure Russians are really ready for that.
This is not the Soviet Union of early forties or whatever, ’39. Russia’s not been invaded, Russia is the invading force. Do Russians really want to lose millions of people fighting for someone else’s country? I just really don’t see that.
Bilal Hafeez (13:25):
You mentioned Afghanistan earlier. For me, there’s two analogies. One is the Chechen conflict in the nineties. And they’re obviously before the war in Afghanistan. Either one of those two useful reference points to today, do you think?
Timothy Ash (13:39):
Well, I would use Afghanistan. But in Afghanistan, I think only 15,000 Soviet troops died. The casualty figures, well, that’s so much lower. But incredibly unpopular. An incredibly unpopular conflict.
A foreign intervention. It’s hard to know whose figures to believe, but it seems credible that Russia has lost… Probably 100,000 dead, multiples probably injured. That’s a huge casualty toll.
And the longer it goes on, the more it will be. And it’s blood and treasure. So I think that likely in the short term, we see Russia continuing trying to drive this offensive forward.
It’s getting stuck in the mud in Bakhmut and we know large… And this stuff about the push from Belarus, I think is bull. Total bull. The Belarusians would never fight. If Belarusian forces came in from the north with the Russians, the Belarusians would lay down the arms at the first point of conflict with the Ukrainians. There’s no way.
And they would gift all their weaponry to the Ukrainians. And then Lukashenko would have a nightmare at home because he lost any credible fighting forces he would have in Ukraine.
Ukraine’s Likely Spring Offensive
Timothy Ash (14:42):
And then I think regime change in Belarus is a possibility. So I think that we see a continuation of this incremental push by the Russians, it failing. And then probably this idea of a spring counter-offensive from the Ukrainians as they get these main battle tanks.
And this idea of trying to break or divide the land corridor to Crimea is a real possibility. And I think the danger still… The bias in my mind, or the risk in my mind, certainly all the probabilities, is that we do see a collapse of Russian forces in Ukraine. Just because of the sheer volume of losses.
China’s Peace Intervention
Timothy Ash (15:16):
And I think it’s interesting. You’ve not mentioned it yet. But this week, what was notable, I think, was this Chinese intervention. In my mind, the first really credible peace effort… There was a Turkish process, obviously last spring.
China has been out to lunch on this whole war. Really, the Chinese have been rabbit caught in the headlights. They’ve had no policy at all towards this war. Totally blindsided. Putin certainly didn’t tell Xi that he was going to invade.
So there’s, initially, huge irritation. And then there’s a period where, I think, the Chinese were trying to figure things out and then thought, ‘Well, maybe there’s an advantage here. We can get some cheap energy from Russians. This is going to undermine Putin, make him weaker.’
Always been the some tension in China-Russian relations. The Chinese always thought they were the dominant partner, and Putin didn’t. And I think this war definitely ensured that it was clear to everyone that the Chinese were the dominant partner, and Russia was a minor partner. So the Chinese liked that.
But I think what’s changed, and I think the Munich Security Conference and the comments from Yi, the Chinese foreign policy guy, suggesting some kind of peace effort by the Chinese…
I think what we’re seeing there is the Chinese are realising that Putin could actually lose, and there could be a devastating loss by Russia in Ukraine that could threaten regime change in Russia itself. And the Chinese certainly don’t want that.
So putting all this together, no route to victory for Russia. The Chinese signalling that they’re really worried about a total defeat of Russia in Ukraine, and ramifications for Russia itself and domestic political instability in Russia itself.
Bilal Hafeez (17:05):
On that stability within Russia, there’s been a lot of talk recently about Putin potentially losing power, and a speculation about his health is one. Another is his credibility amongst the other senior people within Russia.
There’s talk of some of the ultras on the right, taking over from him. What do you make of all of those rumours that are swirling around? It’s just hard to know. Obviously, it’s a tug-of-war, and stories swirl like this.
Timothy Ash (17:35):
No one know. Let’s just go to the stuff before February 23rd, 24th and all the stuff coming out the Kremlin. People in the know, Russia doesn’t want to invade. It’s total bull again. No one had any insights at all.
Lavrov, all the guys speaking around this, you couldn’t get anything sensible from any of them. So we don’t know. The guy’s basically in a compound on a bunker somewhere, he rarely comes out. He’s in some kind of cocoon.
I assume his security is pretty good. But people I talk to around the elites, certainly the oligarchy elites, I don’t think they’re very happy. Any normal, sensible person looking at this, what has Russia achieved? Where is the win here? Where is any win at all?
Again, a huge loss of life. Lost Ukraine forever. Unified the West against Russia. The West was pretty disunified before the invasion. One of the big surprises for me is actually the unity of the West in support of Ukraine. And there’s no evidence of it cracking.
The End of Russian Military Exports?
Timothy Ash (18:45):
So the West has been unified. Russian military capability has been proven to be totally rubbish. Russia’s not going to be able to sell any military kit globally anymore. They were flogging S-400s everywhere.
Why would any third power want to buy any Russian military kit? It’s been humiliated in Ukraine. Russia was supposed to be a top tier military power; peer with the US or China.
It fought a fourth or fifth rate military power in Ukraine. I think the Ukrainians would have admitted that at the start of the conflict, and they defeated Russia. That’s just staggering.
And then there’s the treasure, the sanctions. The outlook for the Russian economy is dreadful. Stagnation. Decline. All these Russian oligarchs, they cannot access the houses and the football clubs and all that kind of stuff in the West.
As I said, the outlook is stagnation, decline, declining living standards. Russia is now in a… It’s in an arms race with the West. Your opening comments was about Afghanistan. It is very similar to that early ’80 period.
Putin will have to… He’ll want to rebuild that 50% of his conventional military capability that has been lost in Ukraine. Thousands of tanks he’ll want to rebuild.
And now NATO is spending over 2% of GDP on defence. So just to keep up with… Well, to rebuild everything he’s lost, and then to keep up with NATO, that’s going to be a huge burden on a small Russian economy: 1.7 trillion versus the combined West. I don’t know what it is, $40 trillion, something like that. He just can’t compete.
And that means that difficult choices will have to be made. Again, guns versus butter. If Russia is going to have to spend a lot more money on defence, military spending, Putin won’t be able to allocate many resources to keep living standards up.
Who Could Replace Putin?
Bilal Hafeez (20:37):
And what would happen if Putin was to lose power? Would the country become an anarchic state? What would happen? If you just talk us through.
Timothy Ash (20:49):
Look, there’s a debate in Western academic circles at the moment that… There’s one view, like the Macon comments, right?
Bilal Hafeez (20:55):
Timothy Ash (20:56):
‘We can’t let Russia suffer a devastating defeat. We have to think about poor Putin,’ or whatever. Typical Macron, that we should worry about what comes after Putin. Guys, how is it possible to be worse than this guy?
This guy has invaded multiple countries in Europe, waged the biggest war in mainland Europe since the Second World War. He’s conducting genocide in Ukraine. Anyone who doubts that, read his essay.
Look what’s happening in Bucha, et cetera. It is genocide against the Ukrainian people. The Russians have done it before. Holodomor, the 1930s, there’s a track record there.
He’s used weapons of mass destruction in Europe already. Litvinenko, Salisbury, against NATO members. So Russia is evolving into a fascist state. That is fact. How can it get worse than that, honestly?
My base case is the next leader after Putin will be someone like Putin, but not Putin. But someone who will basically want to somehow reset the relationship with the West and say, ‘Look, this has gone too far. This is not serving Russian interests or purpose. We need to move on from Putin.’
Obviously, I think if Putin goes, those like Kadyrov will be taken out pretty quickly by other elites. I don’t think they will be tolerated.
I think there is a possibility of disintegration of the Russian Federation. As you know, it’s made up of lots of autonomous republics: Tatarstan, Chechnya, all these places. There’s possibility.
But actually, I’d even argue should we be so worried about that? Again, we started off talking about my background, my experience in the late Soviet period and watching the collapse of the Soviet Union.
The IMF at the time was trying to stop the disintegration of the USSR into 15… It hated the idea of 15 new countries. And actually, if you look back, I would argue the collapse of Soviet Union overall has been a good thing. Most of those countries are doing okay, and a lot better than they were under Soviet rule.
So I’m not sure, actually. I said my base case is not that… In all likelihood, it will be someone more moderate than Putin, but not a liberal. If we do see centrifugal forces and disintegration, well, we’ll see some new countries form.
And I think the encouraging thing is you also have now engagement by China in the region and other regional powers. Turkey, for example, taking a much stronger interest, certainly in Central Asia.
I would hope that if we ended up in that situation, you’d still have a core Russia, which would keep the nuclear arsenal. And you may end up with new peripheral states that probably would have a similar future to countries in Central Asia that we see now, that are doing kind of okay.
India/Global South’s Neutrality on the Russia-Ukraine War
Bilal Hafeez (24:07):
And moving outside of the Western countries. If you talk about China. But there’s some other countries like India that have played an interesting role within all of this.
The Western countries have tried to tell India to join them in their sanctions on Russia. But India has basically tried to be neutral, so to speak. What do you think about the broader EM countries that have almost taken a non-aligned position against Russia?
Timothy Ash (24:33):
Well, the Global South, right?
Bilal Hafeez (24:34):
The Global South, yeah.
Timothy Ash (24:34):
That’s the way it’s been framed. I find it very frustrating, to be honest. And I get the anti-Western feeling. The Middle East uses the Iraq war, Syria, the failed Western policy in Syria, the Arab Spring… I get all that.
And as someone who actually argued against Western intervention in the region, those particular conflicts… But the reality is that Putin committed war crimes in Syria, which the West was wrong in not intervening against that.
He’s doing exactly the same in Ukraine. It’s wrong. We should intervene to stop it, like we should do in Syria. And I would argue that the Iraq war was the biggest Western policy mistake since the Crusades, probably.
Bilal Hafeez (25:22):
Timothy Ash (25:22):
It’s a big statement to make but… Well, I mean it’s true.
Bilal Hafeez (25:26):
Timothy Ash (25:26):
Well, it’s a different subject, but would we have had the instability that we’ve seen in the Middle East since?
Bilal Hafeez (25:31):
Yeah, that’s fair.
Timothy Ash (25:33):
Would we have the migrant flow that we’ve seen? You could possibly trace the rise of populism in Western Europe, in the West to those migrant flows related to the Iraq war, the Second Gulf War.
But anyway, look, I get it. But for me, Russia’s intervention in Ukraine is about imperialism and colonialization. Absolutely. And I just find it incredible the Global South brushes that off.
Bilal Hafeez (26:01):
If you listen to the Indian position, they said this a year ago that when it comes to Western problems, it becomes a global problem. When it comes to the Global South problems, the West doesn’t care.
Moreover, the Indians are saying, for example… They’re a poor country still. They need food. They need oil. They can’t afford to not secure those from Russia. That’s the position. And India presumably is a proxy for the Global South in their stance.
Timothy Ash (26:29):
Or maybe they should lobby Russia a bit more aggressively to stop invading another country. And remember, Ukraine is a poor country. It had a GDP of $3,000 a head.
I think it goes to a basic misunderstanding of this whole conflict. And people like Mearsheimer bang the narrative, which is totally utterly wrong. It’s a false narrative. This war is not because of NATO expansion.
It’s interesting that Russia annexed Crimea in ’14, and invaded Donbas in 2014 as well. When the last US tanks left emerging Europe in 2013, NATO expansion actually brought less NATO military capability.
This idea that NATO expansion brought some kind of threat to Russia, it’s just not true. And the war in Ukraine happened… Again, Ukraine was invaded and annexed in 2014 when surveys showed the vast majority of the population didn’t want NATO membership.
Ukraine’s military doctrine was anti-Western, not anti-Eastern. It had almost no military capability. It wasn’t a threat to Russia. The fact that the Russians took Crimea in three hours just shows that Ukraine absolutely was not a threat.
Russia invaded Ukraine, it annexed Crimea because of Putin’s imperial colonial agenda. That’s fact. The Global South, I would think, would be interested in the opinions of Ukrainians who feel that and are suffering. Probably hundreds of thousands of Ukrainians have also died in this conflict. They are suffering.
How Putin Views the West
Bilal Hafeez (28:17):
So in terms of global geopolitics, if we step back, there’s the US on one side, you have China as the two big powers. You have Europe in the middle somewhere.
Then you have these regional powers, you could say like India, maybe Saudi, Israel, and the Middle East, and Brazil, and LATAM. How do you see global geopolitics post the Russia-Ukraine conflict?
Timothy Ash (28:40):
Well, it’s becoming pretty binary. My view. And as I said, I’m quite left leaning in my political views, but I sound like a Neo-Con, this issue. But I have form, in terms of I’ve spent 35, 40 years looking at post-Soviet space. I’d say it’s my area of expertise.
I think that Putin isn’t well with the West. That’s the reality. For whatever reason, he’s got this problem about the collapse of the Soviet Union. He wants to recreate Moscow’s empire.
He saw weakness in the West, the rise of populism, energy dependency. And he saw an opportunity. An opportunity, weakness in Ukraine. And he went for it. He went to try and take back what he thought was rightly Russian, which I would obviously disagree with.
I would also argue that Putin has been setting this up for a decade. People are often focused on sanctions, and sanctions haven’t worked.
The reality is Putin set up forces, Russian economic policies, economic settings. The fact that they have 600 billion reserves, they deleverage, he’s been preparing this for years. He knew he was going to do it.
He builds up that durability. He waited for the right opportunity. From his perspective, the perfect position of ultimate weakness of the West. And he went in. He didn’t expect Ukraine to fight. He didn’t expect the West to be united against him. Big surprise.
But it’s done the opposite of what he thought it was going to do. Putin, the master tactician, is proven to be totally false. But anyway, in terms of answering your question, he’s made it clear he’s against the West, with us Western liberal market democracy. He hates it. It is a battle between autocracy and kleptocracy and our model. Right?
Russia/Ukraine and Emerging Markets
Bilal Hafeez (30:34):
Yeah. Where does that place India, Brazil, Indonesia, all of these emerging market, big…? Or Turkey? Who do they align themselves with?
Timothy Ash (30:45):
Well, it’s a time where you’ve got to decide where you’re going to be. Actually, one of the really interesting takeouts for me is that… Again, this idea of military kits and technology…
Many of those Global South countries have been pandering to Russia to get access to S-400s and Russian kits, as an alternative to some Western kit because obviously, you might get S-16s from the Americans, but there’s lots of ESG-related KPIs around it that they don’t necessarily like.
Actually, the fact that Russian military kit has performed so badly, actually gives the West small leverage. It’s interesting. Now I would say that the better relationship we’re seeing between Pakistan and the US is related to the fact that the military are much more eager now to get access to far superior Western military technologies. They’ve recently done a deal on S-16 upgrades.
Bilal Hafeez (31:39):
And Turkey. What about a country like Turkey? Because they seem to be pandering in recent years to Russia. Turkey’s quite an interesting country in that respect. What do they do now? And they’ve been buying a lot of those S-400s that you talk about.
Timothy Ash (31:54):
Well, I’m not sure they’re very useful anymore. That’s certainly a couple of billion bucks that’s maybe gone down the drain. Look, Turkey’s a complicated story.
I don’t think it necessarily means that Turks want to be pulled out of the Western orbit. I think it just reflects the particularities of Erdoğan’s own difficulties, in terms of the opinion polls and looming elections.
He’s obviously got his own balance of payments problems. He needs some cash. He’s presented himself as some kind of rival source of power in the region for the Gulf guys, for the Russians.
He’s got a bit of leverage. They’re writing him a few checks to enable him to ride through to elections. But I think in the end, Turkey understands, I think, that access to Western military technology is key to its own defence.
And I think when push comes to shove after these elections, whoever wins, there’ll have to be some kind of normalisation in the relationship with the West. Turkey’s place is in NATO. I always hoped it would be in the European Union as well, but that’s probably never going to happen.
But I guess the West understands that it’s difficult for the Global South. They rely on China for lots of things as well. Each country makes its own decisions. You mentioned, I think, there in your question somewhere about Europe, not quite sure knowing where Europe is.
Bilal Hafeez (33:16):
Yeah. Yeah. Yeah.
Timothy Ash (33:17):
Right. Actually, I think this conflict has made it crystal clear.
Bilal Hafeez (33:21):
Yeah. No, that’s a fair point. Maybe I was being too…
European Views on Russia
Timothy Ash (33:24):
The French and Germans are wishy-washy, right?
Bilal Hafeez (33:26):
Timothy Ash (33:27):
But actually, I think I’m amazed by the unity of Europe and the West around this conflict. And the appeases in France and Germany really are not the dominant voice, they’re far the minority voice. And I think the minority voice, because their appeasement has totally failed.
It’s been proven to be a totally unsuccessful policy to let Putin get away with all this, to the point that he’s invaded a country and caused a massive global energy crisis and huge humanitarian crisis in Europe. Basically, this guy’s a bad guy.
Bilal Hafeez (34:02):
And what about the central European countries that border the Ukraine and so on? So countries like Hungary, for example. How are they positioning themselves?
Timothy Ash (34:13):
Well, all of them, perhaps with the exception of Serbia and Hungary, are positioning themselves firmly in the Ukrainian camp. They all understand. They all have a Soviet, Warsaw-packed history. They get it.
They get Russian imperialism. They understand that if Russia succeeds in Ukraine, they’re next. So I think they’ve been leading opinion, if anything, in response to this conflict.
The two ones I identified, Serbia and Hungary, are the ones that are less enthusiastic. I find extraordinary in terms of the Hungarian position, given 56 and Hungary’s own experience of Soviet invasion or Russian invasion.
And I struggle to understand how Orbán, coming from an anti-communist freedom fighter in the late eighties, can end up where he is now. Very disappointing. I think he’s isolated himself within Europe.
And I think after this conflict ends, or maybe before, there’ll be a reckoning with Hungary. I think there is unity around the fact that Orbán… This is not a very…
Well, I was going to say it’s certainly not a very helpful policy. I could be a little bit more aggressive in what I say, but certainly Europe’s defence is on the line, right?
Bilal Hafeez (35:35):
Timothy Ash (35:35):
European values, et cetera. And he’s taken an approach that I think is very destructive. Serbia is, again, a little bit different. Obviously, they have a non-aligned history.
They have their own, obviously, experiences in the Balkan wars for Yugoslav’s succession. But even then, I’ve noticed in recent weeks, suggestions from President Vučić, I think, of some movements.
This idea of having to choose if Serbia’s long-term future in Europe and the European Union are something else. And I think Vučić realises that in the end, Serbs will have to choose the European Union. And that means aligning on sanctions and stuff like that.
Bilal Hafeez (36:25):
Yeah. Now if we move over to more profane subject, markets and money, as an investor, how do you navigate these markets? So first of all, which markets can you still trade in? And how are you positioning in an environment where you have these geopolitical risks, as well as obviously the macro backdrop that we have?
Timothy Ash (36:47):
Well, certainly Russia you can’t trade. Turkey’s hard to trade. Local market just because it’s unorthodox. Crazy policies that we have at the moment from the Central Banks, so most people steering clear of that. Obviously trade credit.
There are plenty to trade in central Europe. You could trade local rates, lots of credit to trade in the region. Ukraine, obviously, you could still give a view. Credit, local market’s difficult to trade, obviously.
I think the global story, where we are, it’s obviously the inflation growth. Where are we, in terms of Fed tightening? We’re all on the same page really. But I guess what’s kind of interesting is the market has now got, as it often does, as you know, it’s become comfortable with the war in Ukraine.
And actually what we’ve learned, I’ve learned certainly, well firstly, he’s lost the energy war. I would argue, I guess I already hinted about it, that he went when he did because he thought the climate transition would weaken his hand.
Europe was moving away from dependence on Russian energy already before the conflict. And he thought if he didn’t act this winter, his leverage would be much reduced.
What we’ve seen, which has been quite remarkable, and particularly in Central Europe, is the impact of price. Markets. Prices go up, demand collapses. Who would have expected 25%, 30% drop in demand in Central Europe? That’s been the key change.
And I know people are worried about next winter and about whether Europe… Maybe this year we’re lucky and China, COVID and all that kind of stuff, and mild winter. But the way the price effect allowed demand to adjust makes me think that actually, we are through the worst of it.
So his ability to have global impact, I think, has significantly reduced. I don’t think he uses weapons of mass destruction.
But I don’t think he would use it to extract vitriol leverage in Ukraine in particular; a mass use of those weapons.
And we do see, next winter, problems in European energy. And he does cross red lines about weapons of mass destruction. I think if he does that, globally we’re in a terrible place.
If Russia is resulting to use of tactical battlefield nuclear weapons in Ukraine, I think we have a globally nightmare scenario with global markets in an extremely bad position. And I think one of the reasons he won’t do that is because that impacts on China.
Bilal Hafeez (39:53):
Yeah. China, every country would then step up against Russia in that scenario.
Timothy Ash (39:57):
Yes. Yes. So I don’t tend to see that. But anyway, I think we’re in a position where people are more comfortable with risks around Ukraine in terms of global impact. Russia and Ukraine.
I’m relatively constructive in terms of, I do see a relatively early end to the war, either through a Ukrainian victory, or there’s a possibility around the China peace talks. They could actually work.
You may say that’s incredible, but I can construct a scenario where… If you look at the three points of the Chinese peace plan that was suggested at the Munich Security Conference, firstly respect for Ukraine sovereignty.
Secondly, no NATO membership for Ukraine. Third, the nuclear… We don’t want a nuclear war. Let’s assume the three… We all agree on number three, and that’s low hanging fruit.
On sovereignty, for me, it would be a scenario where Russian troops withdrew to February 23rd, 2022 settings. So back to possibly still staying in DPR and LPR.
Possibly still staying in Crimea, but an agreement on negotiations about the long-term future about Crimea and DPR and LPR. But Russian troops have to go back to where they were before the invasion last year. Absolutely. There’s no way the Ukrainians would accept anything but that.
And then the interesting one… And I think that’s doable. I think the Ukrainians probably would accept that. It would be painful. But they’re not accepting the giveaway of those territories, they’re just accepting further negotiations about their future.
Interesting one is NATO enlargement. Again, I told you this war is not about NATO enlargement. Absolutely not. It’s about Russian aggression. But I think what is important is, I think the Ukrainians could accept some agreement that they wouldn’t get NATO membership.
But what’s important, really important is security guarantees. What the Ukrainians care about, in the end, is they want some security structure that they can be assured that Russia’s not going to invade them again.
Now there’s been talk of the UK and Poland and other NATO members possibly giving some security guarantees akin to what the US gives to Israel. I think that would be acceptable for the Ukrainians also, as long as they were guaranteed continued armed supplies to enable them to defend themselves.
So again, the state of Israel scenario where I think the Ukrainians then know they can accept some kind of deal around NATO. Question is whether Russia would accept that, actually.
Because again, if like me, you think it wasn’t ever about NATO, it was about Putin taking Ukraine, then why would he accept a scenario that absolutely means he can never take Ukraine again?
But I would argue the pressure from the Chinese, the seriousness of his situation, in terms of the sheer scale of loss of troops, and equipment, and global leverage, and prestige, and sanctions, et cetera, might mean he may well be interested to do that.
So I can see a scenario, in terms of the global impact where we see relatively early into the piece… And then it’s interesting how the market would trade that.
Would it see any security related premium to energy prices drop? I’d imagine energy prices drop somewhat lower. Obviously, that’d make people feel a bit more comfortable about the inflation story.
It would be certainly risky around that scenario initially. I guess then the debate would be obviously growth would rebound with China reopening or whether…
And then obviously, the question that we’re all asking ourselves is really how entrenched is inflation ultimately, which we’re all asking ourselves, I guess?
Bilal Hafeez (43:42):
Yeah. Okay. No, great. We’ve covered a lot of ground here. So I want to pivot now to a couple of personal questions once again. Because you’ve been around for a while now in both the markets, academia, and you’ve travelled the world a lot. So one question I wanted to ask you was what’s the best investment advice you’ve ever received from anybody?
Timothy Ash (44:02):
What, apart from marrying the wife?
Bilal Hafeez (44:06):
That’s a good one.
Timothy Ash (44:07):
Yeah, that’s probably the best one. But best choice in life is probably that one. Best investment advice? I don’t know, it’s a hard one. As an analyst, you’re never going to be right all the time.
And it’s learning from your mistakes. You learn more from the mistakes and dissecting those and understanding where you’ve gone wrong, and understanding your own strengths and weaknesses. And that’s really important.
And it’s also something a young guy or person joining the industry, it’s the same kind of thing. In our industry, as an analyst as well, it’s about making the call.
You’re expected to put your balls on the line, have a view, have high conviction, particularly on the sell side of research. And that is the job, but you’re never going to get it right all the time.
Let’s hope that we’re a little bit cleverer than the next guy; we get it right most of the time. But I think you learn a lot more from your mistakes, right?
Bilal Hafeez (44:59):
Timothy Ash (44:59):
And analysing those, and figuring those out is important.
Bilal Hafeez (45:03):
And you mentioned youngsters there. What advice would you give to youngsters leaving university to enter the job market today?
Timothy Ash (45:11):
Preparation. I also find that some of the best guys I’ve worked with are the people that when they put a trade on, they do all their homework. Every angle is covered. Everything is well thought through. If you’re going into meeting, you’re not prepared, you’re not going to perform particularly well. Right?
Bilal Hafeez (45:28):
Yeah. No, that makes sense. And then finally, in terms of books, are there any books that really influenced you in your career, or any books recently that you’ve really thought, ‘Hang on, that’s a really good book’?
Timothy Ash (45:41):
It’s probably good books. Fiona Hill’s book on Putin. Mr. Putin: Operative in the Kremlin. Well worth a read. I’m a massive fan of Fiona, she reads Putin really well.
And I think that book, she gets into his mind, looks where he comes from, how he makes his decisions. Very interesting. Bill Browder’s book Red Notice made me cry. It’s a very emotional kind of book. Timothy Snyder, great book. Timothy Snyder, Bloodlands. I think if you want to understand Ukraine, Russia, Belarus, that whole space, it’s great.
Bilal Hafeez (46:19):
Oh yeah, I read that book. Horrific. I didn’t quite realise how many times they got invaded during the war. Both sides.
Timothy Ash (46:29):
You can get the Poland, Belarus, Ukraine… You can understand a lot about their future, history or whatever, where they are now by reading the book. And he’s written lots of other great works on Ukraine. But I think they are three ones that I really like, and I guess I learned a lot from them.
Bilal Hafeez (46:47):
Yeah. And then what’s the best way for people to follow you or track your views?
Timothy Ash (46:52):
Wow. Yeah. Well, obviously on Twitter. I’m quite prolific on Twitter. A lot of that is Turkish stuff. I know Turkey is interesting because it’s very polarised. Typically, everyone hates me in Turkey because I try and be balanced, independent, and you can’t please… Well, anyway, whatever. Because both sides dislike me, just because I say what I think.
Bilal Hafeez (47:14):
That’s probably a good thing. If both sides hate you, then that’s probably a good sign.
Timothy Ash (47:17):
Yeah. So Twitter, I’ve got a Substack page. Have a look on there, @tashecon.
Bilal Hafeez (47:22):
Timothy Ash (47:23):
Actually both my Twitter and my Substack are @tashecon. I’m quite unusual on the buy side. I write quite a lot. BlueBay. BlueBay’s a great place that they appreciate the fact that… They allow me to write because they value the fact that I put my views in the information exchange. Right?
Bilal Hafeez (47:39):
Timothy Ash (47:39):
I put my views out there. I’m very often wrong. But I like feedback. So if you want to get on my Substack, have a look on there and reply. I like reading replies. Some of them are a bit nasty sometimes, but whatever.
Bilal Hafeez (47:54):
I’ll include links to all of these in the show notes as well.
Timothy Ash (47:56):
Yeah. Yeah, sure. Perfect. Yeah.
Bilal Hafeez (47:58):
Yeah. Well, great. Well, with that, thanks a lot. It’s been very great chatting to you, and very comprehensive as always. And good luck this year with markets.
Timothy Ash (48:06):
Yeah, thank you very much. Yeah, it’s going to be an interesting year again.
Bilal Hafeez (48:11):
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