Barron’s checked in with Gave by phone on June 27, just before he embarked on an African safari, to be followed by a business trip to India. The talk ranged from the benefits for China and India of the peace deal between Saudi Arabia and Iran to the longer-term outlook for artificial-intelligence darling Nvidia (ticker: NVDA). An edited version of the discussion follows.

Barron’s: The geopolitical landscape is shifting quickly. What should investors know?

Louis-Vincent Gave: The biggest geopolitical development that people in the West don’t talk about enough is the Iran-Saudi Arabia peace deal [brokered by China in March]. For 20 years, the Middle East was in the midst of a civil war. Yemen, Syria, Iraq, Lebanon—all were proxy wars between Saudi Arabia and Iran. For these countries to now say, “We are burying the hatchet”—that’s mind-blowing.

The deal reminds me of the peace deals between France and Germany post–World War II. They allowed for 50 years of uninterrupted growth in Europe, with not just a huge peace dividend but massive economic integration, which creates its own growth.

How might something similar play out today in the Middle East?

[There’s] a peace dividend and a lot more capital spending around the region, with Saudi Arabia announcing trillions of dollars in capex over the coming decade. When you look at the infrastructure spending plans being announced, with energy pipelines that will go from China to Pakistan into Iran and then into Oman, it’s a game changer. It means the control of the oceans might not matter as much as before.

The investment implications?

If you’re China and 80% of your energy comes via the ocean, you have two potential problems. The U.S. could embargo your oil deliveries, as it did with Japan’s in the 1930s. That would cause your economy to implode. But if you can now import oil [by land] from Iran, Oman, or Saudi Arabia, you are [somewhat] energy independent.

Second, if the price of oil rises to $300 a barrel, China’s economy similarly implodes. How could that happen? In a war, Iran and Saudi Arabia could bomb each other’s oil installations. If you take that off the table, as this peace deal has, China—or India, another big oil importer—can breathe a sigh of relief and feel more confident about long-term infrastructure spending.

What do geopolitical shifts mean for the U.S. dollar?

That’s the second huge geopolitical development. Russia’s invasion of Ukraine is a game changer for every emerging market. If you are India, Indonesia, Thailand, or China, you now get to buy oil in your own currency. Before, you had no choice but to stockpile U.S. dollars in case oil prices [denominated in dollars] or the price of the U.S. dollar shot up.

Take India. Its biggest challenge has been a budget deficit and current-account deficit that need to be funded. Whenever oil prices rose, the current-account deficit became unmanageable, so the central bank would have to raise interest rates and crush the Indian economy to get oil demand down. Everybody has always asked why India couldn’t spend massively on infrastructure. That is changing.

Should investors diversify away from the dollar?

Yes. Most people look at the U.S. Dollar Index [which measures the dollar’s value primarily against the euro and yen]. But other currencies, such as the Brazilian real or commodity-producing currencies, have moved up. Why shouldn’t you buy a real-dominated Brazilian TIPS [Treasury inflation-protected security] yielding 6% [after inflation]?

How do these changes work their way through markets?

There is a boom in emerging markets, but investors are missing it because China isn’t doing well [it accounts for 30% of the MSCI Emerging Markets index]. Indian, Brazilian, and Indonesian purchasing-manager-index readings are at record highs. For all the talk about AI and the Nasdaq, since the start of Covid, stock markets in Brazil, Argentina, Mexico, India, and Indonesia have outperformed the U.S. And their bond markets are crushing the U.S. Treasury market.

Is it too late to buy these markets?

How many people do you know who have 5% of their allocation in emerging markets ex-China? It’s still peanuts.

The next bull market has already started: It’s in emerging markets ex-China. Long-lasting bull markets are usually driven by rising currency and falling real interest rates—a great combination for asset prices to rerate. Today, if you’re looking for a place where you’re making money on the currency, bonds, and equities, it’s not in the U.S. or in Europe, but rather, emerging markets.

What about the opportunity created by AI?

It is going to upend a lot of business models. For a lot of companies—such as those in healthcare or financial services—it is going to be tremendously productivity-enhancing. But does that justify paying 38 times sales for Nvidia? That’s where I balk.

If you think of the next five years—because if you’re buying anything at 38 times sales, you’d better think of that time horizon, if not longer—will Nvidia still be the go-to AI play? Probably not. Either some other hardware provider will have come along, or there will be better pure plays.

The internet blew past everybody’s expectations, but if you bought the top 10 tech stocks in 2000, you made money in Microsoft [MSFT] but lost money on all the others, including Nortel, Lucent, and Sun Microsystems.

Do you see opportunities elsewhere in Asia, such as Japan?

There are two things helping the Japanese market. The first is the continuation of yield-curve control [central-bank policies that keep bond yields below a certain level]. If you’re a Japanese saver, why stay in bonds yielding negative 3%? Everyday Japanese savers sell bonds to buy equities.

Plus, inflation has gone from negative 1% to 3%. It is a lot easier to manage a business than during deflation. Margins are better because [Japanese companies] slashed every cost for 30 years. But it’s a bull market that is operating with the sword of Damocles over the bond market.

How so?

Japanese interest rates of 0.5% aren’t going to last forever. It’s a bit like a currency peg that you know will break. When it breaks, it’s hard to believe it won’t create volatility in the equity market. Plus, this is happening against the backdrop of a weak currency.

This is where it gets tricky. The day the Bank of Japan decides to stop yield-curve control, the yen will move from 140 against the dollar to 120 in a New York second. Perhaps the equity market goes down 10%, and you lose 15% on the currency if you hedged, so you could get crushed on both sides. I don’t think Japan is in a 10-year bull market like the emerging markets’ bull market.

How will Japan exit yield-curve control?

As long as inflation doesn’t shoot up past the 3% to 3.5% mark, the BOJ keeps yield-curve control, which means a weak yen. That could help Japan’s biggest export industry, autos, which is going to get its lunch eaten by the Chinese. By the end of this year, China will probably be the world’s largest car exporter.

That doesn’t seem well known.

The Chinese aren’t selling in the U.S. but rather to South Asia and India and Latin America. China comes in with lower prices, which creates its own demand. BYD [BYD], the car company that Charlie Munger invested in, produces an electric-vehicle hatchback called the Seagull. It’s like the Honda Civic or Toyota Prius, and sells for $11,000. If you’re an Indonesian doctor, maybe you can’t afford a $25,000 Japanese car, but you can afford an $11,000 Chinese car.

Yet, China’s domestic economic recovery is sputtering. What is your outlook?

Mea culpa: I thought the recovery would be stronger because I applied my Western framework, but China didn’t have big stimulus during the lockdowns. The stimulus in China is coming now. If you want to be kind, you could say things will start picking up later this year. But there is still about a year before wages start to pick up again [spurring consumption].

Will the sluggish recovery alter China’s policy priorities?

If you’re [Chinese leader] Xi Jinping, the primary objective now isn’t GDP [gross domestic product] growth or even creating jobs. It’s boosting the technology sector [in the face of] U.S. attacks. Growth is secondary.

Should investors buy Chinese stocks?

I own Alibaba Group Holding [BABA], Tencent Holdings [700.Hong Kong], and BYD. These stocks are unloved and underowned and still have attractive growth potential at a time when the government is pushing liquidity into the system.

Thanks, Louis.