Wall Street has long existed as a parallel universe where leaders cast by critics in the media as autocratic villains can be feted as heroes if their actions bode well for the economy. Lately, this split has reached new extremes.
In the critics’ view, we live in an increasingly illiberal age, populated by dangerously erratic strongmen. Leading examples include President Jair Bolsonaro of Brazil, who at the United Nations this week defiantly defended his government against charges that it is turning a blind eye as the Amazon burns; President Abdel Fattah el-Sisi of Egypt, whose tough, military-backed regime has been the target of protests over the past week; and Prince Mohammed bin Salman of Saudi Arabia, widely reviled for the assassination of the journalist Jamal Khashoggi by Saudi operatives.
Yet global investors view the same trio as promising economic reformers, following a mainstream playbook that could have been written (indeed sometimes is written) by analysts at the International Monetary Fund. Markets reward them accordingly. For much of their recent tenures, Brazil under Mr. Bolsonaro and Saudi Arabia under Prince Mohammed have all ranked among the world’s hottest stock markets. Until this week, this year’s top-performing market was Egypt.
The harsh reality is that markets are amoral, instinctively neutral barometers of economic performance, and they will at times ignore the brutality and excesses of strongmen for a simple reason: Facing little or no resistance from legislatures, courts or independent watchdogs, strongmen can push through sweeping reforms — particularly in emerging economies, where political institutions and the rule of law are relatively weak. Looking at the records for 150 countries between 1950 and 2010, I found 43 cases in which an economy grew at an annual pace of 7 percent or more for a full decade. An astonishing 35 of those economies — more than 80 percent of them — were run by an autocrat.
The downside is that nations subject to the unchecked whims of autocrats are also vulnerable to wild growth swings — and long slumps. Among the same 150 countries, I found 138 cases in which an economy grew at a pace of 3 percent or slower for a decade, and 100 of those economies were led by an autocrat.
Markets sense the erratic nature of economies run by strongmen and will bet big on these figures until the moment economic reforms lose momentum. Stock markets enjoyed bull runs under autocrats who instituted high-growth policies, like Augusto Pinochet of Chile, Suharto of Indonesia and Mahathir Mohamad of Malaysia in the 1970s, 1980s and 1990s.
After 2000 a new generation of autocratic market darlings arose, led by President Vladimir Putin of Russia and President Recep Tayyip Erdogan of Turkey. In their first terms, the stock markets of Russia and Turkey rose, respectively, by about 100 percentage points and 300 percentage points faster than the average for emerging countries. Later, investors would turn on Russia and Turkey, not because their leaders grew more troublesomely autocratic but because they stopped pushing tough economic reforms.
What markets look for perhaps above all is financial stability, a necessary condition for solid growth. Today, while there are many differences among Mr. Bolsonaro, Mr. el-Sisi and Prince Mohammed, they have each taken steps to put their financial houses in order.
Mr. Bolsonaro plans to downsize the bureaucracy, sell off state companies and cut up to $250 billion from pension payments that could bankrupt Brazil. Mr. el-Sisi, in part to secure I.M.F. help, has raised taxes on capital gains and on the rich, and slashed fuel subsidies by more than 50 percent. Prince Mohammed has cracked down on rich tax dodgers, including fellow Saudi royals, raised sales taxes and cut energy subsidies as a way to pare back a large budget deficit.
Wall Street research reports on Brazil, Egypt and Saudi Arabia barely mention autocratic tendencies. Instead, they say that reforms are “still on track” in Saudi Arabia, Egypt is “the best reform story” in its region, and “market considers Bolsonaro Brazil’s ‘last chance’ to reform economy.” The gap between market and mainstream media narratives is now a yawning chasm.
In May, Mr. Bolsonaro was driven out of Manhattan by headline-grabbing demonstrators chanting “fascista,” shortly after his University of Chicago-educated economic minister, Paulo Guedes, was greeted as a savior by global investors at the I.M.F.’s semiannual meeting in Washington. One participant (a Wall Street liberal) told me Mr. Guedes’s speech, outlining Mr. Bolsonaro’s free-market plans, was “the most inspiring” she had ever heard at this confab.
One trait the new strongmen share is a tendency to blur ideological lines. Illiberal politics often combine with eclectic economics in ways that make them hard to place on the traditional left-right political spectrum. President Trump, a champion of blue-collar jobs and tax cuts for the rich, is a prominent example. More than any other American president, he has tried to please the stock market. And as the impeachment battles heat up, he is likely to try to please it more, in his erratic way — perhaps by looking for a quick trade deal with China or further badgering the Federal Reserve to cut interest rates again.
Not coincidentally, Mr. Trump has lavished praise on Mr. Bolsonaro, Mr. el-Sisi and Prince Mohammed, who occupy the same gray area. The crown prince has freed women to drive as part of an economic modernization campaign while suppressing activists who push for broader women’s rights. Is he right or left, progressive or reactionary, or beyond the old categories?
It is not that people on Wall Street themselves are amoral or aren’t often appalled by the excesses of autocrats. But it is their job to filter out headlines casting strongman presidents and prime ministers as cruel villains, and focus instead on whether their policies are likely to spur growth.
With illiberal leaders still on the rise worldwide, this political age is likely to produce more strongmen the market can love.
Ruchir Sharma, author of “The Rise and Fall of Nations: Forces of Change in the Post-Crisis World,” is the chief global strategist at Morgan Stanley Investment Management and a contributing opinion writer.