Now that BRICs are looked to as the economic growth engines of the short- and long term future, they're now sharing economic power which extends beyond the G-8. China itself will soon pass Japan as the second-largest economy in the world, behind only the U.S.
While the G-8 accounts for about 66 percent of the overall global GDP, when taking into account the G-20, they together makeup close to 85 percent of all global economic production.
What has changed economically from the past, is now the countries in the G-20 are more the drivers of economic recovery, versus the G-8, which used to be the main economic force in the world, and the engine of recovery.
Making up the G-20 members are Argentina, India, Australia, Canada, China, France, Germany, Indonesia, Italy, Japan, South Korea, Mexico, the U.K., Russia, Saudi Arabia, South Africa, Brazil, Turkey, the U.S. and the European Union.
Saturday, September 26, 2009
Tuesday, September 15, 2009
BRIC Consumption will Lead Global Economic Recovery
Brics will lead economic recovery
The days of the American consumer leading the global economy are over, and the BRICs will lead the way going forward, and will lead the way out of the global recession.
Because of the growing middle classes in Brazil, Russia, India and China, they will lead the global consumption for many years into the future, and add the continuing strengthening in their currencies against the U.S. dollar and you can see how they'll account for close to half of the overall consumption in the world in 2010.
And with the foolishness of American regulators and the Federal Reserve refusing to stop their extraordinary and massive bailouts of banks and other industries, the U.S. dollar will continue to fall in strength for a long time to come.
When inflation comes about from the terrible policies of Ben Bernanke and his ilk, we'll see another uprising by the American people who don't quite understand the impact of what printing that much money will do to the greenback.
BRIC countries will be the beneficiaries of these policies, and will continue to strengthen their economies in comparison to the U.S. economy.
Brics will lead economic recovery
The days of the American consumer leading the global economy are over, and the BRICs will lead the way going forward, and will lead the way out of the global recession.
Because of the growing middle classes in Brazil, Russia, India and China, they will lead the global consumption for many years into the future, and add the continuing strengthening in their currencies against the U.S. dollar and you can see how they'll account for close to half of the overall consumption in the world in 2010.
And with the foolishness of American regulators and the Federal Reserve refusing to stop their extraordinary and massive bailouts of banks and other industries, the U.S. dollar will continue to fall in strength for a long time to come.
When inflation comes about from the terrible policies of Ben Bernanke and his ilk, we'll see another uprising by the American people who don't quite understand the impact of what printing that much money will do to the greenback.
BRIC countries will be the beneficiaries of these policies, and will continue to strengthen their economies in comparison to the U.S. economy.
Brics will lead economic recovery
Wednesday, September 9, 2009
Brazil Becoming Major Energy Plays as it Discovers Another New Oil Field
Brazil Oil
Brazil's future continues to look bright in the energy sector, as another oil field discovery in the pre-salt region confirms the estimations of between 60 billion to 150 billion barrels of recoverable oil are waiting to be extracted.
The latest oil field discovery called Guara, is also the result of new techniques used which can now find oil under the covering salt on the ocean floor, which in the past wasn't able to be done. Up to 2 billion barrels of oil are estimated for the latest finding.
Brazil is now the leading energy producer in the region, as Hugo Chávez continues to decimate the Venezuelan economy through his socialist practices. Brazil emerging as the leading energy producer in the region is great news for all who live there, as well as everyone in the western hemisphere.
Another conclusion that could be made is this could undermine the peak oil theory, and contribute to the idea that there are still vast recoverable oil reserves yet to be tapped into around the world.
Brazil Oil
Brazil's future continues to look bright in the energy sector, as another oil field discovery in the pre-salt region confirms the estimations of between 60 billion to 150 billion barrels of recoverable oil are waiting to be extracted.
The latest oil field discovery called Guara, is also the result of new techniques used which can now find oil under the covering salt on the ocean floor, which in the past wasn't able to be done. Up to 2 billion barrels of oil are estimated for the latest finding.
Brazil is now the leading energy producer in the region, as Hugo Chávez continues to decimate the Venezuelan economy through his socialist practices. Brazil emerging as the leading energy producer in the region is great news for all who live there, as well as everyone in the western hemisphere.
Another conclusion that could be made is this could undermine the peak oil theory, and contribute to the idea that there are still vast recoverable oil reserves yet to be tapped into around the world.
Brazil Oil
Tuesday, August 25, 2009
BRIC Middle Classes Driving Economy
BRIC Middle Class
No matter how long it takes to emerge from the economic recession the world is now in, there's no doubt after things get better, that over the next couple of decades BRIC middle classes will drive the global economics and prosperity for the next several decades.
The American consumer has been the chief mover of the global economy for a long time, but that is about to change, and the recession and the emerging and growing middle classes in Brazil, Russia, India and China will lead the way going forward; especially China and India.
Once things turn around we'll see these middle class people desire and buy up many products and services, and there'll be unprecedented growth for some time; although there will always be temporary slowdowns in general, but the overall curve should go up for the most part in these nations.
According to McKinsey & Co., the urban Chinese middel class will spend close to $2.3 trillion a year by 2025, while India's middle class should grow from 5 percent today to over 40 percent of the nation over the next 20 years. Brazil and Russia will also contribute significantly to this growth, marking an unprecedented opportunity at prosperity and growth.
The majority of emerging markets avoided the worst of the economic crisis, which originated in the mortgage-backed bonds that the U.S. sold to the developed world. Their economies have declined far less dramatically, and contrary to the U.S. or Europe, many are projected to grow this year. So it’s no surprise that consumers in emerging-market countries want more of the products those in the West take for granted.
Those companies and individuals investing in the BRICs should enjoy success when they focus on sectors like banking, finance, real estate, retail, consumer goods, commodities and entertainment.
This isn't a short-term strategy to employ when engaging the BRICs, but rather those with an long-term outlook should do very well by investing in BRIC nations and economies.
BRIC Middle Class
No matter how long it takes to emerge from the economic recession the world is now in, there's no doubt after things get better, that over the next couple of decades BRIC middle classes will drive the global economics and prosperity for the next several decades.
The American consumer has been the chief mover of the global economy for a long time, but that is about to change, and the recession and the emerging and growing middle classes in Brazil, Russia, India and China will lead the way going forward; especially China and India.
Once things turn around we'll see these middle class people desire and buy up many products and services, and there'll be unprecedented growth for some time; although there will always be temporary slowdowns in general, but the overall curve should go up for the most part in these nations.
According to McKinsey & Co., the urban Chinese middel class will spend close to $2.3 trillion a year by 2025, while India's middle class should grow from 5 percent today to over 40 percent of the nation over the next 20 years. Brazil and Russia will also contribute significantly to this growth, marking an unprecedented opportunity at prosperity and growth.
The majority of emerging markets avoided the worst of the economic crisis, which originated in the mortgage-backed bonds that the U.S. sold to the developed world. Their economies have declined far less dramatically, and contrary to the U.S. or Europe, many are projected to grow this year. So it’s no surprise that consumers in emerging-market countries want more of the products those in the West take for granted.
Those companies and individuals investing in the BRICs should enjoy success when they focus on sectors like banking, finance, real estate, retail, consumer goods, commodities and entertainment.
This isn't a short-term strategy to employ when engaging the BRICs, but rather those with an long-term outlook should do very well by investing in BRIC nations and economies.
BRIC Middle Class
Friday, August 21, 2009
BRIC Business | Rethink Them?
BRIC Business
An economic crisis will always bring out the best and worst, and the strenght and weakness of any economy, and the current economic crisis has provided fresh fuel to the debate over the feared decline of the West and rise of the East. The so-called BRICs – Brazil, Russia, India, and China – are often touted as the inevitable economic winners. But when you look behind the numbers, it suggests that the proclamation that these countries have won is far too premature.
The numbers at this time don't reinforce the assertions, and The World Bank’s dark forecasts see global GDP falling a record 2.9 percent in 2009, along with deteriorating current account balances, increased debt, soaring unemployment, gyrating stock markets and tumbling business confidence. Yes, there may be a few spots of recovery. China’s stimulus efforts – a quick expansion of fixed investment and credit to the state sector generated by huge foreign reserves – seem to have had a predictable positive, if likely short-term, effect. Perhaps broader, but still modest, recoveries in 2010 and 2011 are in the cards. And there is the looming risk of inflation to have to deal with, which could undermine China especially.
But the way to full recovery is not clear at this time. The global economy is at some kind of tipping or inflection point, a moment of paradigm shift. If the Anglo-American model of finance capital is yet another god that failed, so too the alternatives: Japanese networked capitalism, Euro-dirigisme, or various flavors of state capitalism (perhaps combined, as in China, with authoritarian politics) have not been widely embraced.
At this point, enter the BRICs. Before the severity of the looming economic storm was clear, the BRICs were the sweethearts of the investment sector. They were first lumped together in an influential Goldman Sachs research report in 2001. Goldman forecast that their ongoing GDP growth could outpace the rest of the world, with the GDPs of China and India surpassing those of the major Western economic powers before mid-century. To be sure, these “emerging markets” were not seen as risk free, but with their scale – continental powers with large populations and records of substantial economic growth – they looked attractive. Especially to punters playing the markets. If Goldman liked them, how could you go wrong?
But there’s more to economic prowess than GDP statistics and stock market indices. This is not to gainsay the BRICs’ – especially China and India’s – economic momentum and remarkable development. Visitors to China cannot be but wowed by what metropolitan colossi Beijing and Shanghai have become. India’s IT prowess dominates. But sustainable growth and economic leadership will ultimately have to be based on business environment fundamentals. International metrics that go beyond GDP suggest the BRICs have a long way to go.
Take, for beginners, corruption, the negative element that eats away at business confidence, rule of law and fair dealing. None of the BRICs rank very high in the 180-country survey published by Transparency International. Brazil and India come in at 80th and 85th place, roughly comparable to Burkina Faso, Saudi Arabia and Panama. Russia, unsurprisingly, is close to the bottom, ranking 147th – Kenya and Syria are neighbors. China does best, at 72nd place – right down there with Mexico. And if the current murky scandal involving China’s steel industry which has ensnared executives from Australia’s Rio Tinto shows anything, it’s that corruption of China’s legal system can eat business confidence away.
If there’s corruption, then it’s not so easy to do business there. The World Bank studies “the ease of doing business” in 181 countries. Brazil, Russia and India stand between 120 to 125 in those league tables. China comes in a little better, in 83rd place – a little higher than Belarus, a little lower than Kenya. The most difficult issues? Dealing with the local authorities in Russia and China; enforcing contracts in India’s clogged legal system, and, interestingly, taxes in Brazil.
None of the BRICs lead the World Economic Forum’s most recent “Global Competitiveness Report” (GCR). This sophisticated survey pulls together a large range of business environment variables, including social and political stability, economic concerns, technological sophistication and management quality. Of the 134 countries ranked, China comes in at 30th place (comparable to Spain); India and Russia land at 50th and 51st places respectively (about the same as Italy); and Brazil checks in at 64th place, close to Turkey and Kazakhstan. The GCR points out that all of these environments are plagued by bureaucracy, corruption, changeable business policies and problems with finance. (Not that the G-8 countries are 100% clean here either!).
And if social stability is a metric, then the fires that have fueled tragic communal violence in India and, more recently, China have to be a concern. You don’t push too hard against entrenched interests in Russia, where arbitrary arrest and even murder can be the outcome.
Should we really be surprised? From these perspectives, the BRICs don’t look that strong. These countries are all, in one way or another, still developing. Brazil and Russia rank in the middle of the United Nations’ Human Development Index; China is just a little below and India, is almost at the bottom. Russia and China face demographic challenges. China is growing older, while Russia has even more major population problems – it’s declining.
Their economic, social and political systems differ in a major way: Brazil’s economy is based on agriculture; India’s on services; Russia’s on price-sensitive energy resources, and China on manufactures for export. China and Russia have had problematic political relations; the disputed borders between China and India are still hot. What do they share? Growth potential. And a desire to take the U.S. dollar down a notch. Is that enough to assert that the answer to the world’s problems be found with the BRICs?
BRIC officials seem to think so. In the run up to the April 2009 G-20 meeting in London they pushed their own agenda, calling for new international finance rules, reform of the IMF and the World Bank, and resurrection of the Doha round. Overall, they are pushing for a multi-polar economic order, one less dominated by the US.
The Russians called for a new international currency backed by IMF SDRs (Special Drawing Rights) – an idea also picked up by Brazil and China. Indian Prime Minister Manmohan Singh said that the eyes of the world were on India in the “hope that India would be an engine of growth for the world economy.” Chinese officials touted their own “stimulus package” and quick action, noting the superiority of China’s command system “when it comes to making vital policy decisions.”
But at a “BRIC Summit” held in Yekaterinburg in July, there was less fire – a BRIC agenda did not surface. Still, the idea of a new international reserve currency hasn’t gone away.
We focus on these things not to criticize the BRICs individually but rather to put a little more reality into the important discussion of world economic recovery. First, they can hardly be considered a cohesive group. Second, sustainable leadership demands a sound business environment. On that score, the BRICs have a long way to go.
To be sure, their equity markets seem to be doing ok (China’s seems to be a bubble). But there’s more to the economy of any country than GDP projections and speculative bets about the future of a few leading companies.
But after all of this, we still have to remember that America had a lot of false starts and ups and downs in its early years or prosperity, so that shouldn't change for China or the other BRIC nations any time soon. Russia will struggle the most of all of them, while China and India will continue to lead them. Brazil, because it depends primarily on commodities, will do well when demand starts to increase again, and they could be right up there, and possibly surpass China and India as far as percentag of growth goes. Russia could do that too if it was in better position and strength, but it has a long way to go before that is a reality.
BRIC Business
An economic crisis will always bring out the best and worst, and the strenght and weakness of any economy, and the current economic crisis has provided fresh fuel to the debate over the feared decline of the West and rise of the East. The so-called BRICs – Brazil, Russia, India, and China – are often touted as the inevitable economic winners. But when you look behind the numbers, it suggests that the proclamation that these countries have won is far too premature.
The numbers at this time don't reinforce the assertions, and The World Bank’s dark forecasts see global GDP falling a record 2.9 percent in 2009, along with deteriorating current account balances, increased debt, soaring unemployment, gyrating stock markets and tumbling business confidence. Yes, there may be a few spots of recovery. China’s stimulus efforts – a quick expansion of fixed investment and credit to the state sector generated by huge foreign reserves – seem to have had a predictable positive, if likely short-term, effect. Perhaps broader, but still modest, recoveries in 2010 and 2011 are in the cards. And there is the looming risk of inflation to have to deal with, which could undermine China especially.
But the way to full recovery is not clear at this time. The global economy is at some kind of tipping or inflection point, a moment of paradigm shift. If the Anglo-American model of finance capital is yet another god that failed, so too the alternatives: Japanese networked capitalism, Euro-dirigisme, or various flavors of state capitalism (perhaps combined, as in China, with authoritarian politics) have not been widely embraced.
At this point, enter the BRICs. Before the severity of the looming economic storm was clear, the BRICs were the sweethearts of the investment sector. They were first lumped together in an influential Goldman Sachs research report in 2001. Goldman forecast that their ongoing GDP growth could outpace the rest of the world, with the GDPs of China and India surpassing those of the major Western economic powers before mid-century. To be sure, these “emerging markets” were not seen as risk free, but with their scale – continental powers with large populations and records of substantial economic growth – they looked attractive. Especially to punters playing the markets. If Goldman liked them, how could you go wrong?
But there’s more to economic prowess than GDP statistics and stock market indices. This is not to gainsay the BRICs’ – especially China and India’s – economic momentum and remarkable development. Visitors to China cannot be but wowed by what metropolitan colossi Beijing and Shanghai have become. India’s IT prowess dominates. But sustainable growth and economic leadership will ultimately have to be based on business environment fundamentals. International metrics that go beyond GDP suggest the BRICs have a long way to go.
Take, for beginners, corruption, the negative element that eats away at business confidence, rule of law and fair dealing. None of the BRICs rank very high in the 180-country survey published by Transparency International. Brazil and India come in at 80th and 85th place, roughly comparable to Burkina Faso, Saudi Arabia and Panama. Russia, unsurprisingly, is close to the bottom, ranking 147th – Kenya and Syria are neighbors. China does best, at 72nd place – right down there with Mexico. And if the current murky scandal involving China’s steel industry which has ensnared executives from Australia’s Rio Tinto shows anything, it’s that corruption of China’s legal system can eat business confidence away.
If there’s corruption, then it’s not so easy to do business there. The World Bank studies “the ease of doing business” in 181 countries. Brazil, Russia and India stand between 120 to 125 in those league tables. China comes in a little better, in 83rd place – a little higher than Belarus, a little lower than Kenya. The most difficult issues? Dealing with the local authorities in Russia and China; enforcing contracts in India’s clogged legal system, and, interestingly, taxes in Brazil.
None of the BRICs lead the World Economic Forum’s most recent “Global Competitiveness Report” (GCR). This sophisticated survey pulls together a large range of business environment variables, including social and political stability, economic concerns, technological sophistication and management quality. Of the 134 countries ranked, China comes in at 30th place (comparable to Spain); India and Russia land at 50th and 51st places respectively (about the same as Italy); and Brazil checks in at 64th place, close to Turkey and Kazakhstan. The GCR points out that all of these environments are plagued by bureaucracy, corruption, changeable business policies and problems with finance. (Not that the G-8 countries are 100% clean here either!).
And if social stability is a metric, then the fires that have fueled tragic communal violence in India and, more recently, China have to be a concern. You don’t push too hard against entrenched interests in Russia, where arbitrary arrest and even murder can be the outcome.
Should we really be surprised? From these perspectives, the BRICs don’t look that strong. These countries are all, in one way or another, still developing. Brazil and Russia rank in the middle of the United Nations’ Human Development Index; China is just a little below and India, is almost at the bottom. Russia and China face demographic challenges. China is growing older, while Russia has even more major population problems – it’s declining.
Their economic, social and political systems differ in a major way: Brazil’s economy is based on agriculture; India’s on services; Russia’s on price-sensitive energy resources, and China on manufactures for export. China and Russia have had problematic political relations; the disputed borders between China and India are still hot. What do they share? Growth potential. And a desire to take the U.S. dollar down a notch. Is that enough to assert that the answer to the world’s problems be found with the BRICs?
BRIC officials seem to think so. In the run up to the April 2009 G-20 meeting in London they pushed their own agenda, calling for new international finance rules, reform of the IMF and the World Bank, and resurrection of the Doha round. Overall, they are pushing for a multi-polar economic order, one less dominated by the US.
The Russians called for a new international currency backed by IMF SDRs (Special Drawing Rights) – an idea also picked up by Brazil and China. Indian Prime Minister Manmohan Singh said that the eyes of the world were on India in the “hope that India would be an engine of growth for the world economy.” Chinese officials touted their own “stimulus package” and quick action, noting the superiority of China’s command system “when it comes to making vital policy decisions.”
But at a “BRIC Summit” held in Yekaterinburg in July, there was less fire – a BRIC agenda did not surface. Still, the idea of a new international reserve currency hasn’t gone away.
We focus on these things not to criticize the BRICs individually but rather to put a little more reality into the important discussion of world economic recovery. First, they can hardly be considered a cohesive group. Second, sustainable leadership demands a sound business environment. On that score, the BRICs have a long way to go.
To be sure, their equity markets seem to be doing ok (China’s seems to be a bubble). But there’s more to the economy of any country than GDP projections and speculative bets about the future of a few leading companies.
But after all of this, we still have to remember that America had a lot of false starts and ups and downs in its early years or prosperity, so that shouldn't change for China or the other BRIC nations any time soon. Russia will struggle the most of all of them, while China and India will continue to lead them. Brazil, because it depends primarily on commodities, will do well when demand starts to increase again, and they could be right up there, and possibly surpass China and India as far as percentag of growth goes. Russia could do that too if it was in better position and strength, but it has a long way to go before that is a reality.
BRIC Business
Saturday, August 15, 2009
BRICs Drive Export Demand
BRIC Driving Export Demand
With the U.S. consumers expected to hold back on spending for some time, the world continually is looking for the rebound from the BRIC countries in order to generate increasing demand for exports, which will help their domestic economies.
According to a recently released Goldman Sachs report, they assert the BRICs will account for around 50 percent of export demand as their domestic consumption grows; presumably from their emerging middle classes.
The report reiterated what we already know here, that China would perform particularly strong, more than likely accounting for 30% of the world’s consumption growth next year, which is more than the combined growth of the G3 — United States, Japan and Germany — as they slowly move out of recession.
Goldman Sachs, which dubbed the term BRIC in 2001, said the emergence of the BRIC consumer is an important development that will create demand and hence support the export markets of developed economies, and I would add that this will be going on for some time to come.
The report added that consumption in the BRIC economies would be supported by a shift in spending power from the richest countries towards a growing middle-income bloc in the emerging markets. Consumption would likely receive a further increase when the fast economic growth in China and India finally reaches their rural populations.
As these domestic economies emerge, the type of products they consume is also likely to slowly move away from low-value-added products, like agricultural goods, to those at the higher end, such as cars, office and telecom equipment.
The Goldman economists estimate that Chinese retail sales, a key indicator of consumption, rose 17.6% in the year ended June, with food and beverages products posting the biggest gains, although it remains to be seen whether this is a real rebound once their stimulus money runs it course and potential inflation arises. Retail sales in Brazil, while lower than in 2008, remained well supported and would likely increase in the third quarter as demand for commodities increase.
India does not measure retail sales, but individual components, such as vehicle sales are used to measure the consumer for consumption demand. Goldman said auto sales had increased in a big way, and were now selling quicker than before the crisis.
Russia, after years of strong growth, was the only BRIC country where retail sales growth had suffered, and is slowly losing the luster connected to being included with BRIC at this time. Sales in the year to June fell 6.72% on the back of a plunge in non-food products.
While most agree the BRIC countries will have an increasingly important role to play in the worldwide economy, not all are sure they can drive demand, but I think that's ludicrous based on China alone.
BRIC Driving Export Demand
With the U.S. consumers expected to hold back on spending for some time, the world continually is looking for the rebound from the BRIC countries in order to generate increasing demand for exports, which will help their domestic economies.
According to a recently released Goldman Sachs report, they assert the BRICs will account for around 50 percent of export demand as their domestic consumption grows; presumably from their emerging middle classes.
The report reiterated what we already know here, that China would perform particularly strong, more than likely accounting for 30% of the world’s consumption growth next year, which is more than the combined growth of the G3 — United States, Japan and Germany — as they slowly move out of recession.
Goldman Sachs, which dubbed the term BRIC in 2001, said the emergence of the BRIC consumer is an important development that will create demand and hence support the export markets of developed economies, and I would add that this will be going on for some time to come.
The report added that consumption in the BRIC economies would be supported by a shift in spending power from the richest countries towards a growing middle-income bloc in the emerging markets. Consumption would likely receive a further increase when the fast economic growth in China and India finally reaches their rural populations.
As these domestic economies emerge, the type of products they consume is also likely to slowly move away from low-value-added products, like agricultural goods, to those at the higher end, such as cars, office and telecom equipment.
The Goldman economists estimate that Chinese retail sales, a key indicator of consumption, rose 17.6% in the year ended June, with food and beverages products posting the biggest gains, although it remains to be seen whether this is a real rebound once their stimulus money runs it course and potential inflation arises. Retail sales in Brazil, while lower than in 2008, remained well supported and would likely increase in the third quarter as demand for commodities increase.
India does not measure retail sales, but individual components, such as vehicle sales are used to measure the consumer for consumption demand. Goldman said auto sales had increased in a big way, and were now selling quicker than before the crisis.
Russia, after years of strong growth, was the only BRIC country where retail sales growth had suffered, and is slowly losing the luster connected to being included with BRIC at this time. Sales in the year to June fell 6.72% on the back of a plunge in non-food products.
While most agree the BRIC countries will have an increasingly important role to play in the worldwide economy, not all are sure they can drive demand, but I think that's ludicrous based on China alone.
BRIC Driving Export Demand
Thursday, August 13, 2009
Are BRICs Really that Powerful?
BRIC Business News
During the current economic crisis has provided fresh fuel to the debate over the decline of the West and emergence of the East. The so-called BRICs – Brazil, Russia, India, and China – are often looke upon as the inevitable economic winners. A glance behind the numbers, though, suggests proclaiming these countries victors may be a little too early. Some like Russia may not be included at all if major changes aren't made soon.
The numbers aren’t that great. The World Bank’s dark forecasts see global GDP plunging a record 2.9 percent in 2009, along with deteriorating current account balances, increased debt, soaring unemployment, chaotic stock markets and declining business confidence. Yes, there may be a few positives concerning recovery. China’s stimulus efforts – a rapid expansion of fixed investment and credit to the state sector fueled by massive foreign reserves – seem to have had a predictable positive, if probably short-term, effect. Although there is the possibility of a broader, but still mild, recoveries in 2010 and 2011 .
But the path to full recovery is not clear in any way. The global economy is at some kind of tipping or inflection point, a moment of paradigm shift. If the Anglo-American model of finance capital is yet another god that failed, so too the alternatives: Japanese networked capitalism, Euro-dirigisme, or various strains of state capitalism have not been widely accepted.
Before the depth of the coming economic storm was clear, the BRICs were the sweethearts of the investment community. They were first lumped together in an influential Goldman Sachs research report in 2001. Goldman projected that their continuing GDP growth could be faster than the rest of the world, with the GDPs of China and India surpassing those of the major Western economic powers before the middle of the 21st century. To be sure, these “emerging markets” were not seen as without risk, but with their scale – large populations and records of substantial economic growth – they looked very attractive.
But there’s more to economic prowess than GDP statistics and stock market indices. This is not to gainsay the BRICs’ – especially China and India’s – economic momentum and remarkable development. Visitors to China cannot be but wowed by what metropolitan giants Beijing and Shanghai have become. India’s IT prowess dominates. But long term growth and economic leadership will ultimately have to be based on business environment basics. International metrics that go beyond GDP suggest the BRICs have a long way to go, and they're right.
For example, corruption, the acid that eats away at business confidence, rule of law and fair dealing. None of the BRICs rank very high in the 180-country survey published by Transparency International. Brazil and India come in at 80th and 85th place, roughly comparable to Burkina Faso, Saudi Arabia and Panama. Russia, unsurprisingly, is almost at the bottom, ranking 147th – Kenya and Syria being near them. China does best, at 72nd place – right down there with Mexico. And if the current murky scandal involving China’s steel industry which has ensnared executives from Australia’s Rio Tinto shows anything, it’s that corruption and the opacity of China’s legal system can rust business confidence away.
If there’s corruption, then it’s not so easy to do business there, as there is no way of doing business in a predictable manner. The World Bank studies “the ease of doing business” in 181 countries. Brazil, Russia and India stand between 120 to 125 in those tables. China comes in somewhat better, in 83rd place – a little higher than Belarus, a little lower than Kenya. The most difficult issues? Dealing with the local authorities in Russia and China; enforcing contracts in India’s clogged legal system, and, interestingly enough, taxes in Brazil.
And if social stability is a metric, then the fires that have fueled tragic communal violence in India and, more recently, China (which also suffers from tens of thousands “mass incidents” of citizens protesting corruption) have to be a concern. You don’t push too hard against entrenched interests in Russia, where arbitrary arrest and even murder can be the outcome.
Should we really be surprised? From these points of view, the BRICs don’t look that strong. These countries are all, in one way or another, still developing. Brazil, India and China have large problems of income distribution (more unequal than even the US), issues exacerbated by large but low productivity agricultural sectors and urban squalor. Brazil and Russia rank at midpoint in the 179 country United Nations’ Human Development Index; China is just slightly below and India, alas, is almost at the bottom. And Russia and China face demographic challenges. China is aging. Russia has even more severe population problems – it’s disappearing.
Having said that, we do have to remember the days of America and the wild west where very similar situations were part of the mix. The only difference was the strong Christian influence which helped temper much of this. The BRICs, in general, don't have that as part of the matrix, with the excpetion - to a small degree - of Brazil.
But could they be considered a bloc? Their economic, social and political systems differ considerably: Brazil’s economy is based on agriculture; India’s on services; Russia’s on price-sensitive energy resources, and China on manufactures for export. China and Russia have had problematic political relations; the disputed borders between China and India are still hot (and let’s not forget New Delhi’s concerns about the cozy relationship between Beijing and Islamabad). What do they share? Growth potential. And a desire to take the Yankee dollar down a peg. Is that sufficient to suggest that the answer to the world’s woes be found with the BRICs?
BRIC officials seem to think so. In the run up to the April 2009 G-20 meeting in London they pushed their own agenda, calling for new international finance rules, reform of the IMF and the World Bank, and resurrection of the Doha round. Overall, they are pushing for a multi-polar economic order, one less dominated by the US.
The Russians called for a new international currency backed by IMF SDRs (Special Drawing Rights) – an idea also picked up by Brazil and China. Indian Prime Minister Manmohan Singh said that the eyes of the world were on India in the “hope that India would be an engine of growth for the world economy.” Chinese officials touted their own “stimulus package” and quick action, noting the superiority of China’s command system “when it comes to making vital policy decisions.”
But at a “BRIC Summit” held in Yekaterinburg in July, there was less fire – a BRIC agenda did not surface. Still, the idea of a new international reserve currency hasn’t gone away. The problem there are the consequences of being a world reserve currency, which these countries probably aren't ready to, or willing to take on.
We raise these matters not to criticize the BRICs individually but rather to put a little realism into the crucial discussion of world economic recovery. First, they can hardly be considered a cohesive group. Second, sustainable leadership requires a sound business environment. On that score, the BRICs have a way to go.
To be sure, their equity markets seem to be doing well enough. But there’s more to an economy than GDP projections and speculative bets about the future of a few leading companies.
While some think the BRICs are overly hyped, I don't think that's the case in the long term; with the possible exception of Russia. They will play a huge role the economics of the world, and if nothing else, the populations of China and India, along with their growing middle classes guarantee that.
BRIC Business News
During the current economic crisis has provided fresh fuel to the debate over the decline of the West and emergence of the East. The so-called BRICs – Brazil, Russia, India, and China – are often looke upon as the inevitable economic winners. A glance behind the numbers, though, suggests proclaiming these countries victors may be a little too early. Some like Russia may not be included at all if major changes aren't made soon.
The numbers aren’t that great. The World Bank’s dark forecasts see global GDP plunging a record 2.9 percent in 2009, along with deteriorating current account balances, increased debt, soaring unemployment, chaotic stock markets and declining business confidence. Yes, there may be a few positives concerning recovery. China’s stimulus efforts – a rapid expansion of fixed investment and credit to the state sector fueled by massive foreign reserves – seem to have had a predictable positive, if probably short-term, effect. Although there is the possibility of a broader, but still mild, recoveries in 2010 and 2011 .
But the path to full recovery is not clear in any way. The global economy is at some kind of tipping or inflection point, a moment of paradigm shift. If the Anglo-American model of finance capital is yet another god that failed, so too the alternatives: Japanese networked capitalism, Euro-dirigisme, or various strains of state capitalism have not been widely accepted.
Before the depth of the coming economic storm was clear, the BRICs were the sweethearts of the investment community. They were first lumped together in an influential Goldman Sachs research report in 2001. Goldman projected that their continuing GDP growth could be faster than the rest of the world, with the GDPs of China and India surpassing those of the major Western economic powers before the middle of the 21st century. To be sure, these “emerging markets” were not seen as without risk, but with their scale – large populations and records of substantial economic growth – they looked very attractive.
But there’s more to economic prowess than GDP statistics and stock market indices. This is not to gainsay the BRICs’ – especially China and India’s – economic momentum and remarkable development. Visitors to China cannot be but wowed by what metropolitan giants Beijing and Shanghai have become. India’s IT prowess dominates. But long term growth and economic leadership will ultimately have to be based on business environment basics. International metrics that go beyond GDP suggest the BRICs have a long way to go, and they're right.
For example, corruption, the acid that eats away at business confidence, rule of law and fair dealing. None of the BRICs rank very high in the 180-country survey published by Transparency International. Brazil and India come in at 80th and 85th place, roughly comparable to Burkina Faso, Saudi Arabia and Panama. Russia, unsurprisingly, is almost at the bottom, ranking 147th – Kenya and Syria being near them. China does best, at 72nd place – right down there with Mexico. And if the current murky scandal involving China’s steel industry which has ensnared executives from Australia’s Rio Tinto shows anything, it’s that corruption and the opacity of China’s legal system can rust business confidence away.
If there’s corruption, then it’s not so easy to do business there, as there is no way of doing business in a predictable manner. The World Bank studies “the ease of doing business” in 181 countries. Brazil, Russia and India stand between 120 to 125 in those tables. China comes in somewhat better, in 83rd place – a little higher than Belarus, a little lower than Kenya. The most difficult issues? Dealing with the local authorities in Russia and China; enforcing contracts in India’s clogged legal system, and, interestingly enough, taxes in Brazil.
And if social stability is a metric, then the fires that have fueled tragic communal violence in India and, more recently, China (which also suffers from tens of thousands “mass incidents” of citizens protesting corruption) have to be a concern. You don’t push too hard against entrenched interests in Russia, where arbitrary arrest and even murder can be the outcome.
Should we really be surprised? From these points of view, the BRICs don’t look that strong. These countries are all, in one way or another, still developing. Brazil, India and China have large problems of income distribution (more unequal than even the US), issues exacerbated by large but low productivity agricultural sectors and urban squalor. Brazil and Russia rank at midpoint in the 179 country United Nations’ Human Development Index; China is just slightly below and India, alas, is almost at the bottom. And Russia and China face demographic challenges. China is aging. Russia has even more severe population problems – it’s disappearing.
Having said that, we do have to remember the days of America and the wild west where very similar situations were part of the mix. The only difference was the strong Christian influence which helped temper much of this. The BRICs, in general, don't have that as part of the matrix, with the excpetion - to a small degree - of Brazil.
But could they be considered a bloc? Their economic, social and political systems differ considerably: Brazil’s economy is based on agriculture; India’s on services; Russia’s on price-sensitive energy resources, and China on manufactures for export. China and Russia have had problematic political relations; the disputed borders between China and India are still hot (and let’s not forget New Delhi’s concerns about the cozy relationship between Beijing and Islamabad). What do they share? Growth potential. And a desire to take the Yankee dollar down a peg. Is that sufficient to suggest that the answer to the world’s woes be found with the BRICs?
BRIC officials seem to think so. In the run up to the April 2009 G-20 meeting in London they pushed their own agenda, calling for new international finance rules, reform of the IMF and the World Bank, and resurrection of the Doha round. Overall, they are pushing for a multi-polar economic order, one less dominated by the US.
The Russians called for a new international currency backed by IMF SDRs (Special Drawing Rights) – an idea also picked up by Brazil and China. Indian Prime Minister Manmohan Singh said that the eyes of the world were on India in the “hope that India would be an engine of growth for the world economy.” Chinese officials touted their own “stimulus package” and quick action, noting the superiority of China’s command system “when it comes to making vital policy decisions.”
But at a “BRIC Summit” held in Yekaterinburg in July, there was less fire – a BRIC agenda did not surface. Still, the idea of a new international reserve currency hasn’t gone away. The problem there are the consequences of being a world reserve currency, which these countries probably aren't ready to, or willing to take on.
We raise these matters not to criticize the BRICs individually but rather to put a little realism into the crucial discussion of world economic recovery. First, they can hardly be considered a cohesive group. Second, sustainable leadership requires a sound business environment. On that score, the BRICs have a way to go.
To be sure, their equity markets seem to be doing well enough. But there’s more to an economy than GDP projections and speculative bets about the future of a few leading companies.
While some think the BRICs are overly hyped, I don't think that's the case in the long term; with the possible exception of Russia. They will play a huge role the economics of the world, and if nothing else, the populations of China and India, along with their growing middle classes guarantee that.
BRIC Business News
Wednesday, August 5, 2009
Are BRIC Really Leading Recovery?
BRIC Markets Business
How a little time changes everything, as potential investment in China and Asia has swung from extremely negative sentiment to a huge emotional uplift as the Shanghai stock market index has exploded by over 90 percent so far in 2009. The influx of capital from brokerage firms into the market makes the rally unsustainable based on economics, as eventually the rally will correct, but in the meantime the rally has made people a lot of money.
For several years Beijing has been struggling to keep deflate and inflate its stock market, and unfortunately has been using the same misguided printing of money to cause inflation in the asset markets, but which inevitably inflate energy and consumer goods to the detriment of consumers.
Unbelievably, China's M2 money supply has been increasing by 28.5 a year, which could come back and haunt them before it's all over. Government-controlled banks have infused loans worth $1.2 tillion into the economy in attempts to stimulate growth. That's an extraordinary 25 percent of the overall Chinese economy.
All that could and eventually will burst from the artificially created market boom.
China has been buying up a huge amount of gold and the Shanghai gold market has benefited from it. China is now on track to overtake India as the leading consumer of gold in the world as it builds up its stockpiles. Rumors are the gold the IMF is ready to unload will be acquired by China over the years going forward.
China is also poised to increase gold output by 3 percent this year, bringing the total to about 290 tons. Even so, that's far below the 400 tons they consumed in 2008.
With that in mind, China could import even more gold over the next several months, of balance off the eventual gold correction to come.
Investors in the Shanghai market are counting on Beijing to inflate even more in the asset markets to balance things off with the gold.
The question is whether Beijing will continue to loan at the levels it did in the early part of 2009, as it could generate even more inflation that could harm consumers and make it difficult to live.
Much of the existing monetary policy from Beijing has been to shore up their regions which were hit hard by the drop in global trade and exports, as their stimulous plan focused primarily on infrastructure projects.
Growth for Chinese corporate earnings are of majore importance, with the Shanghai stock index soaring higher in bubble territory. Massive industrial companies in 22 Chinese provinces saw their profits plunge -21.2% in the first half to 894.14 billion yuan, but the fall was less from the first quarter’s 32% slide, and now, “less bad,” means signs of a recovery.
Best case scenarios are growth rates in the Chinese industrial sector to reach 30 percent for the fourth quarter because of the government insertion of cash.
That's probably going to be far from the reality though as China’s Bank of Communications a more healthy, but significant growth rate of over 9 percent for the third quarter and close to 10 percent for the fourth quarter.
Surging markets in China are helping hold up the BRIC nations, including Brazil, India, and Russia, which have the four best performing stock markets this year. Brazil’s Bovespa Index has grown by 79%, India’s Sensex Index is up 63%, and Russia’s RTS Index has surged by 62-percent. The S&P-500 Index by comparison, is up 9.4% this year, while Japan’s Nikkei-225 index is up 7.5-percent.
The ongoing strength of China’s economy has brought back the de-coupling debate, which hinges on the theory that the emerging economies in Brazil, Russia, India, China, (BRIC) can continue to grow in regardless of the declining G-7 economies. The so-called BRIC countries accounted for half of global growth in 2008 - China alone accounted for a quarter, and Brazil, India, and Russia combined equaled another quarter. BRIC has accounted for over 90% of the rise in consumption of energy products and metals, and 80% of grains since 2002.
The cycle of events are now swinging back in Russia’s favor, as global speculators flock back into hard-hit resource shares trading in Moscow. Russia’s central bank slashed its main interest rates for the fourth time in less than three-months, after Moscow said the local economy contracted an annual 10.2% in the January-May period.
The Russian rouble has rebounded 16% against the US-dollar, since the first quarter, as Urals blend crude oil has gained close to $70 a barrel, and base metals inceased much higher, boosting demand for Russia’s currency, a world leader in commodity exports. Russia is the world’s second-largest oil exporter behind Saudi Arabia, and supplies a quarter of Europe’s natural gas needs. Russia is also the world’s largest nickel and palladium miner, the second largest platinum miner, and the fourth-largest iron ore miner, behind Brazil, Australia, and India.
After reaching a record high of $597-billion last August, Moscow’s foreign currency reserves were depleted in a major way during the second-half of 2008, as the central bank spent more than $200-billion shoring up the Russian rouble and strengthing the capital position of domestic banks. This year’s uptick in Urals blend crude oil has improved the Kremlin’s coffers, to the tune of $404-billion today. China, the world’s second-largest oil guzzler, imported 3.83-million barrels per day in July, or 25% more than a year earlier, the fastest pace in close to two years.
The BRIC nations are having second thoughts on how their US-dollar currency reserves are managed, underscoring a power shift from the United States, which sparked the global financial crisis. Russian chief Dmitry Medvedev has repeatedly questioned the US-dollar’s future as a global reserve currency. China is allowing companies in its southern provinces of Yunnan and Guangxi to use yuan to settle cross-border trade with Hong Kong and Southeast Asia to reduce exposure to the US-dollar.
Reserve Bank of India chief Duvvuri Subbarao says India’s modest dependence on exports will help Asia’s third largest economy, to weather the “Great Recession” and even stage a modest recovery later this year. Even during the depths of the October massacre in the Bombay Sensex Index, India managed to retain a 5.3% growth rate in the fourth quarter, and India’s banking system had virtually no exposure to any kind of dangerous asset generated in the United States.
India’s factory output fell by 0.25% in January, the first decline this decade, and export earnings have dropped for six straight months. In January exports were 16% down from a year earlier falling to $12.3-billion. So the Reserve Bank of India battled to rescue the Bombay stock market, by cutting its lending rates six times from September thru April, by a total of 425-basis points.
The Indian Sensex index began to decouple from Wall Street and Tokyo in early May, after it rallied 14% for its biggest weekly gain since 1992, when Indian Prime Minister Manmohan Singh won a second term. Bombay stocks surged at the idea that Singh’s new government, shorn of Communists, would privatize up to $20-billion of state-owned assets, increase foreign investment in highly profitable crown jewel companies, begin deregulation of banking and financial services, and get rid of restrictions on the closing of factories.
India’s manufacturing sector, measured by the Purchasing Mgr’s Index, remained at a strong reading of 55.3 in July, or 2-points above China’s, implying a strong industrial recovery in the second half of this year. If the decoupling of China, India, Russia, and Brazil becomes a reality, it could be good for the developed G-7 nations, as growing wealth in BRIC nations could, in theory, increase demand for goods made in weakend nations like Japan, Germany, and the United States.
A decoupling between the emerging BRICK nations and the more developed G-7 economies would mean a huge shift in the global financial markets, away from the traditional pattern of emerging markets dancing to the tune of G-7 economies, which still account for 60% of global GDP. Instead, increasing independence could lead to a greater sphere of influence of the emerging giants, led by Beijing.
In the United States, Fed chief Bernanke is pumping a “bailout bubble” for Wall Street, similar to the policies of his mentor “Easy” Al Greenspan, who inflated the housing bubble, the sub-prime debt bubble, and the high-tech bubble. It’s a never ending cycle of boom-and-busts of bubbles, engineered by central banks. The revival of the “Commodity Super Cycle,” might already be already in motion, and if a global economic recovery gains traction, soaring input costs, would begin to crimp the profit margins of the giant Asian industrialists.
All the liquidity that’s been unleashed into the global banking system would play havoc with accelerating inflation. History shows that central banks won’t pre-empt inflation by withdrawing liquidity early. Instead, the money printers tend to inflate bubbles to dangerous proportions. Add to the mix, the vast leverage of the US-dollar and Japanese yen carry trades, it’s going to be a wild ride for the US Treasury bond market, which is increasingly dependent upon the whims of BRIC.
The many assertions about a turn around because of government interference and intervention around the world is a dangerous assumption to make, and it's far from certain that we're in a recovery of any sort at all.
But when a real recovery does come, the BRIC nations should be at the forefront of it.
BRIC Markets Business
How a little time changes everything, as potential investment in China and Asia has swung from extremely negative sentiment to a huge emotional uplift as the Shanghai stock market index has exploded by over 90 percent so far in 2009. The influx of capital from brokerage firms into the market makes the rally unsustainable based on economics, as eventually the rally will correct, but in the meantime the rally has made people a lot of money.
For several years Beijing has been struggling to keep deflate and inflate its stock market, and unfortunately has been using the same misguided printing of money to cause inflation in the asset markets, but which inevitably inflate energy and consumer goods to the detriment of consumers.
Unbelievably, China's M2 money supply has been increasing by 28.5 a year, which could come back and haunt them before it's all over. Government-controlled banks have infused loans worth $1.2 tillion into the economy in attempts to stimulate growth. That's an extraordinary 25 percent of the overall Chinese economy.
All that could and eventually will burst from the artificially created market boom.
China has been buying up a huge amount of gold and the Shanghai gold market has benefited from it. China is now on track to overtake India as the leading consumer of gold in the world as it builds up its stockpiles. Rumors are the gold the IMF is ready to unload will be acquired by China over the years going forward.
China is also poised to increase gold output by 3 percent this year, bringing the total to about 290 tons. Even so, that's far below the 400 tons they consumed in 2008.
With that in mind, China could import even more gold over the next several months, of balance off the eventual gold correction to come.
Investors in the Shanghai market are counting on Beijing to inflate even more in the asset markets to balance things off with the gold.
The question is whether Beijing will continue to loan at the levels it did in the early part of 2009, as it could generate even more inflation that could harm consumers and make it difficult to live.
Much of the existing monetary policy from Beijing has been to shore up their regions which were hit hard by the drop in global trade and exports, as their stimulous plan focused primarily on infrastructure projects.
Growth for Chinese corporate earnings are of majore importance, with the Shanghai stock index soaring higher in bubble territory. Massive industrial companies in 22 Chinese provinces saw their profits plunge -21.2% in the first half to 894.14 billion yuan, but the fall was less from the first quarter’s 32% slide, and now, “less bad,” means signs of a recovery.
Best case scenarios are growth rates in the Chinese industrial sector to reach 30 percent for the fourth quarter because of the government insertion of cash.
That's probably going to be far from the reality though as China’s Bank of Communications a more healthy, but significant growth rate of over 9 percent for the third quarter and close to 10 percent for the fourth quarter.
Surging markets in China are helping hold up the BRIC nations, including Brazil, India, and Russia, which have the four best performing stock markets this year. Brazil’s Bovespa Index has grown by 79%, India’s Sensex Index is up 63%, and Russia’s RTS Index has surged by 62-percent. The S&P-500 Index by comparison, is up 9.4% this year, while Japan’s Nikkei-225 index is up 7.5-percent.
The ongoing strength of China’s economy has brought back the de-coupling debate, which hinges on the theory that the emerging economies in Brazil, Russia, India, China, (BRIC) can continue to grow in regardless of the declining G-7 economies. The so-called BRIC countries accounted for half of global growth in 2008 - China alone accounted for a quarter, and Brazil, India, and Russia combined equaled another quarter. BRIC has accounted for over 90% of the rise in consumption of energy products and metals, and 80% of grains since 2002.
The cycle of events are now swinging back in Russia’s favor, as global speculators flock back into hard-hit resource shares trading in Moscow. Russia’s central bank slashed its main interest rates for the fourth time in less than three-months, after Moscow said the local economy contracted an annual 10.2% in the January-May period.
The Russian rouble has rebounded 16% against the US-dollar, since the first quarter, as Urals blend crude oil has gained close to $70 a barrel, and base metals inceased much higher, boosting demand for Russia’s currency, a world leader in commodity exports. Russia is the world’s second-largest oil exporter behind Saudi Arabia, and supplies a quarter of Europe’s natural gas needs. Russia is also the world’s largest nickel and palladium miner, the second largest platinum miner, and the fourth-largest iron ore miner, behind Brazil, Australia, and India.
After reaching a record high of $597-billion last August, Moscow’s foreign currency reserves were depleted in a major way during the second-half of 2008, as the central bank spent more than $200-billion shoring up the Russian rouble and strengthing the capital position of domestic banks. This year’s uptick in Urals blend crude oil has improved the Kremlin’s coffers, to the tune of $404-billion today. China, the world’s second-largest oil guzzler, imported 3.83-million barrels per day in July, or 25% more than a year earlier, the fastest pace in close to two years.
The BRIC nations are having second thoughts on how their US-dollar currency reserves are managed, underscoring a power shift from the United States, which sparked the global financial crisis. Russian chief Dmitry Medvedev has repeatedly questioned the US-dollar’s future as a global reserve currency. China is allowing companies in its southern provinces of Yunnan and Guangxi to use yuan to settle cross-border trade with Hong Kong and Southeast Asia to reduce exposure to the US-dollar.
Reserve Bank of India chief Duvvuri Subbarao says India’s modest dependence on exports will help Asia’s third largest economy, to weather the “Great Recession” and even stage a modest recovery later this year. Even during the depths of the October massacre in the Bombay Sensex Index, India managed to retain a 5.3% growth rate in the fourth quarter, and India’s banking system had virtually no exposure to any kind of dangerous asset generated in the United States.
India’s factory output fell by 0.25% in January, the first decline this decade, and export earnings have dropped for six straight months. In January exports were 16% down from a year earlier falling to $12.3-billion. So the Reserve Bank of India battled to rescue the Bombay stock market, by cutting its lending rates six times from September thru April, by a total of 425-basis points.
The Indian Sensex index began to decouple from Wall Street and Tokyo in early May, after it rallied 14% for its biggest weekly gain since 1992, when Indian Prime Minister Manmohan Singh won a second term. Bombay stocks surged at the idea that Singh’s new government, shorn of Communists, would privatize up to $20-billion of state-owned assets, increase foreign investment in highly profitable crown jewel companies, begin deregulation of banking and financial services, and get rid of restrictions on the closing of factories.
India’s manufacturing sector, measured by the Purchasing Mgr’s Index, remained at a strong reading of 55.3 in July, or 2-points above China’s, implying a strong industrial recovery in the second half of this year. If the decoupling of China, India, Russia, and Brazil becomes a reality, it could be good for the developed G-7 nations, as growing wealth in BRIC nations could, in theory, increase demand for goods made in weakend nations like Japan, Germany, and the United States.
A decoupling between the emerging BRICK nations and the more developed G-7 economies would mean a huge shift in the global financial markets, away from the traditional pattern of emerging markets dancing to the tune of G-7 economies, which still account for 60% of global GDP. Instead, increasing independence could lead to a greater sphere of influence of the emerging giants, led by Beijing.
In the United States, Fed chief Bernanke is pumping a “bailout bubble” for Wall Street, similar to the policies of his mentor “Easy” Al Greenspan, who inflated the housing bubble, the sub-prime debt bubble, and the high-tech bubble. It’s a never ending cycle of boom-and-busts of bubbles, engineered by central banks. The revival of the “Commodity Super Cycle,” might already be already in motion, and if a global economic recovery gains traction, soaring input costs, would begin to crimp the profit margins of the giant Asian industrialists.
All the liquidity that’s been unleashed into the global banking system would play havoc with accelerating inflation. History shows that central banks won’t pre-empt inflation by withdrawing liquidity early. Instead, the money printers tend to inflate bubbles to dangerous proportions. Add to the mix, the vast leverage of the US-dollar and Japanese yen carry trades, it’s going to be a wild ride for the US Treasury bond market, which is increasingly dependent upon the whims of BRIC.
The many assertions about a turn around because of government interference and intervention around the world is a dangerous assumption to make, and it's far from certain that we're in a recovery of any sort at all.
But when a real recovery does come, the BRIC nations should be at the forefront of it.
BRIC Markets Business
Saturday, August 1, 2009
China, India Still Growing
Brazil and Russia slowing
BRIC is an acronym referring to the fast-growing developing economies of Brazil, Russia, India, and China. The acronym was first named and prominently used by Goldman Sachs in 2001. Goldman Sachs asserted that since they are developing quickly, by 2050 the combined economies of the BRICs could pass the combined economies of the current richest countries of the world. The four countries, combined, currently account for more than a quarter of the world's land area and over 40% of the world's population.
Goldman Sachs did not attempt to say that the BRICs would organize themselves into an economic bloc, or a formal trading association, rather that their combined growth would be substantial.
Even so, there are strong indications that the four BRIC countries have been seeking to form an 'alliance', and thereby converting their growing economic power into greater geopolitical clout because during the 21st century, success in global economy is judged by internal relations within like-minded groups for gains by collective bargaining. This has been easier said than done though.
On June 16, 2009, the leaders of the BRIC countries took part in their first summit in Yekaterinburg, in Russia and issued a declaration calling for the establishment of a multi-polar world order. The Foreign Ministers of the BRIC countries had met previously on May 16, 2008 also in Yekaterinburg. President Luiz Inácio Lula da Silva, President Dmitry Medvedev, Prime Minister Dr. Manmohan Singh, and President Hu Jintao, the respective leaders of Brazil, Russia, India and China, attended the summit.
The key focus of the summit was connected to improving the current global economic situation and discussing how the four countries can better work together in the future, as well as a more general push to reform financial institutions.
Remember that in last April in London, the G-20 leaders met in a summit. One of the decisions was the revamping of IMF and World Bank to ensure other nations are given greater influence and senior positions of IMF and World Bank will be open to candidates from the developing world.
There was also discussion surrounding how developing nations, such as those members of BRIC, could be better involved in global affairs in the future. In the aftermath of the summit the BRIC nations suggested that there was a need for a new global reserve currency that is 'diversified, stable and predictable,' although it would be a huge burden, gamble and risk for any country to do that in the near future.
The statement that was released stopped short of making a direct attack on the perceived 'dominance' of the US dollar, something which the Russians have been critical of. However, it still led to a fall in the value of the dollar against other major currencies.
One week prior to the summit, Brazil offered $10 billion to the International Monetary Fund. It was the first time that the country had ever made such a loan.
Brazil had previously received loans from the IMF and this announcement was treated as a significant demonstration of how Brazil's economic position has changed. China also announced plans to invest a total of $50 billion and Russia planned to invest $10 billion.
BRIC countries are future growth engines of the world. These countries are emerging more quickly than most nations from the global economic crisis.
A criticism is that the BRIC projections are based on the assumptions that resources are limitless and endlessly available when needed. In reality, many important resources currently necessary to sustain economic growth, such as oil, natural gas, coal, other fossil fuels, and uranium might soon experience a peak in production before enough renewable energy can be developed and commercialized, which might result in slower economic growth than anticipated, thus throwing off the projections and their dates.
Though the BRIC countries have their differences, there are some who believe that this new bloc can play a major role in international arena. The importance of this should be perceived because of the reality that the world's largest growing economies got together on the same platform and discussed their respective concerns.
An interesting reality is that the world is neither dominated by a uni-polar power nor multi-polar powers. Currently we live in a non-polar world and the balance of power is going through a time of change.
The fact is the world itself is in transition. The world has changed since 1945, when Big-2 (US and UK) used to decide the fate of the free world. By the end of 20th century, Big -2 became G-7, then-G-8 only to be replaced by G-20 by the 21st century.
Things are going to be a lot different even 10 years from now with the emerging BRIC economies moving forward.
Brazil and Russia slowing
BRIC is an acronym referring to the fast-growing developing economies of Brazil, Russia, India, and China. The acronym was first named and prominently used by Goldman Sachs in 2001. Goldman Sachs asserted that since they are developing quickly, by 2050 the combined economies of the BRICs could pass the combined economies of the current richest countries of the world. The four countries, combined, currently account for more than a quarter of the world's land area and over 40% of the world's population.
Goldman Sachs did not attempt to say that the BRICs would organize themselves into an economic bloc, or a formal trading association, rather that their combined growth would be substantial.
Even so, there are strong indications that the four BRIC countries have been seeking to form an 'alliance', and thereby converting their growing economic power into greater geopolitical clout because during the 21st century, success in global economy is judged by internal relations within like-minded groups for gains by collective bargaining. This has been easier said than done though.
On June 16, 2009, the leaders of the BRIC countries took part in their first summit in Yekaterinburg, in Russia and issued a declaration calling for the establishment of a multi-polar world order. The Foreign Ministers of the BRIC countries had met previously on May 16, 2008 also in Yekaterinburg. President Luiz Inácio Lula da Silva, President Dmitry Medvedev, Prime Minister Dr. Manmohan Singh, and President Hu Jintao, the respective leaders of Brazil, Russia, India and China, attended the summit.
The key focus of the summit was connected to improving the current global economic situation and discussing how the four countries can better work together in the future, as well as a more general push to reform financial institutions.
Remember that in last April in London, the G-20 leaders met in a summit. One of the decisions was the revamping of IMF and World Bank to ensure other nations are given greater influence and senior positions of IMF and World Bank will be open to candidates from the developing world.
There was also discussion surrounding how developing nations, such as those members of BRIC, could be better involved in global affairs in the future. In the aftermath of the summit the BRIC nations suggested that there was a need for a new global reserve currency that is 'diversified, stable and predictable,' although it would be a huge burden, gamble and risk for any country to do that in the near future.
The statement that was released stopped short of making a direct attack on the perceived 'dominance' of the US dollar, something which the Russians have been critical of. However, it still led to a fall in the value of the dollar against other major currencies.
One week prior to the summit, Brazil offered $10 billion to the International Monetary Fund. It was the first time that the country had ever made such a loan.
Brazil had previously received loans from the IMF and this announcement was treated as a significant demonstration of how Brazil's economic position has changed. China also announced plans to invest a total of $50 billion and Russia planned to invest $10 billion.
BRIC countries are future growth engines of the world. These countries are emerging more quickly than most nations from the global economic crisis.
A criticism is that the BRIC projections are based on the assumptions that resources are limitless and endlessly available when needed. In reality, many important resources currently necessary to sustain economic growth, such as oil, natural gas, coal, other fossil fuels, and uranium might soon experience a peak in production before enough renewable energy can be developed and commercialized, which might result in slower economic growth than anticipated, thus throwing off the projections and their dates.
Though the BRIC countries have their differences, there are some who believe that this new bloc can play a major role in international arena. The importance of this should be perceived because of the reality that the world's largest growing economies got together on the same platform and discussed their respective concerns.
An interesting reality is that the world is neither dominated by a uni-polar power nor multi-polar powers. Currently we live in a non-polar world and the balance of power is going through a time of change.
The fact is the world itself is in transition. The world has changed since 1945, when Big-2 (US and UK) used to decide the fate of the free world. By the end of 20th century, Big -2 became G-7, then-G-8 only to be replaced by G-20 by the 21st century.
Things are going to be a lot different even 10 years from now with the emerging BRIC economies moving forward.
Brazil and Russia slowing
Wednesday, July 29, 2009
Russia Struggling Most of BRIC
Russia continues to struggle most among BRIC nations
Some people have been questioning the continual inclusion of Russia among the BRIC economies, as they continue to underperform the rest during these difficult times, and Indonesia has been breathing down BRICs necks to be included among them. Maybe we'll begin to see it called BIIC if Russia doesn't turn things around soon.
China and India remain strong, with China projected to grow at a 8.4 percent rate and India a 6.2 percent rate. Brazil is also struggling with declines expected to come in at 1 percent, but that's no where near Russia's plunge of 8.5 percent.
Considering Brazil and Russia rely on commodities so strongly, it makes Russia's fall look even worse, based on direct comparisons.
The country’s natural comparison is with the BRIC countries — Brazil, Russia, India and China. In the first half of 2009, China and India have been surging ahead, while Russia’s GDP fell off the cliff by 10 percent.
Russia’s economy remains reliant by oil and gas, and its overall government policies depend heavily on the worldwide oil price. Three standard scenarios were formulated in the official Strategy 2020 program. The favored “innovation scenario” was supposed to generate an annual growth of 6.5 percent. It presupposed far-reaching reforms and investment in human capital, which is not a plausible option with an oil price above $60 per barrel.
The Kremlin’s negative “inertia scenario” assumed no significant reforms and forecasted an average growth of 3.9 percent a year. Such an authoritarian petrostate is likely if the oil price is $75 per barrel. In between, the Kremlin put an “energy and raw materials scenario” with 5.3 percent growth, which could be called status quo with an oil price of $60 to $75 per barrel, but such a policy is not likely to generate a high growth rate.
The the major thing to learn is that the higher the oil price is, the lower Russia’s long-term economic growth is likely to be, because the ruling elite will thrive on energy rents rather than pursue reforms or invest in human capital. The greater the corruption is, the more repression the rulers need to defend their fraudulent revenues.
Russia’s course is hard to figure out because overt economic policy changes every few months with the oil price. During the period from May to July 2008, the inauguration of President Dmitry Medvedev raised hopes that he would initiate economic and political reforms — particularly as it related to his anti-corruption initiatives — but we saw no important changes.
Prime Minister Vladimir Putin intimidated Mechel in late July, threatening to send a “doctor” to clean out the company’s problems, and the war in Georgia two weeks later augured a period of darkness and reaction. Russia’s attempts to accede to the World Trade Organization were suspended and a renationalization of leading companies became a priority.
But the devastation caused by the financial crisis and gradual devaluation allowed reformist ideas to surface again. Russia saw a renewed openness from February until May that could almost be labeled a thaw, but again no legislation was passed.
In early June, the oil price surpassed $70 per barrel, and the reactionaries got into action again. In Pikalyovo, Putin declared the not very market-oriented view that private businessmen have to produce for the sake of producing. Numerous governors threatened private enterprise owners with confiscation if they did not rehire workers and keep decrepit factories alive. Several weeks later, Putin suspended Russia’s attempted accession to the WTO and he even went on a personal tour to control sausage prices. Naturally, rumors are ripe of possible new confiscations of large corporations.
This is a terrible to run economic policy. In effect, Russia is pursuing the status quo or inertia scenario — but without the benefit of stability. With its quarterly swings in declared economic policy, the government destabilizes the business environment and fails to carry out any economic policy. Both the vagaries and passivity are dangerous to the country’s economy as is evident from the extraordinary fall in GDP. No wonder that not only China and India but also Brazil are much more successful.
Russia’s only sensible policy has been its fiscal policy with a persistent budget surplus in the good times from 2000 until 2008, which allowed it to build huge international reserves that, while reduced, remain at roughly $400 billion today. This means that Russia can safeguard itself from some fluctuations of the global financial market.
But it is not doing so. On the contrary, it is causing unnecessary domestic financial problems. The ultimate folly was Russia’s gradual devaluation during the period from November to January. Naturally, everybody speculated against the ruble, which meant that the Kremlin instigated a domestic liquidity freeze. It was probably the main reason for the excessively sharp drop in Russia’s industrial output. Amazingly, this operation is officially hailed as a success,ensuring that the danger of a continuation could persist.
The state-dominated banking system remains a disaster. The five dominant state banks are in horrid shape. The government pours more and more money into them, but it helps little as the banks lose it in short order on politically motivated, nonperforming loans. The state banks pose a threat of nationalizing big Russian companies, while they provide little credit. In effect, the Kremlin maintains a detrimental liquidity squeeze.
Senior officials interfere however they want to in big enterprises, asking them to hire more workers, to reduce prices and to expand production under threat of confiscation, further undermining the country’s weak property rights.
Gazprom appears to be the greatest management failure of them all. It is difficult to fathom how it has succeeded in scaring so many customers away in half a year that it has been forced to cut its output by 35 percent. In any other country, save Congo, such a harmful management would be fired without delay. There is no reason to expect any significant improvement as long as the managers remain the same.
Russia’s ultimate shortcoming is its pervasive top-level corruption. Remember that it has failed to extend its road network since 2000. A country that cannot build roads cannot develop much more.
There is no doubt that Russia will recover somewhat because of higher oil prices, the global recovery and recovering exports, but nothing has been done about the country’s profound structural problems, which have only been aggravated during a year of financial crisis. Worse, Russia’s economic policy is in such flux that nothing is being done. Gradually, the question is moving from complaints about how Russia is being governed to criticism that it is not being properly managed.
Russia continues to struggle most among BRIC nations
Some people have been questioning the continual inclusion of Russia among the BRIC economies, as they continue to underperform the rest during these difficult times, and Indonesia has been breathing down BRICs necks to be included among them. Maybe we'll begin to see it called BIIC if Russia doesn't turn things around soon.
China and India remain strong, with China projected to grow at a 8.4 percent rate and India a 6.2 percent rate. Brazil is also struggling with declines expected to come in at 1 percent, but that's no where near Russia's plunge of 8.5 percent.
Considering Brazil and Russia rely on commodities so strongly, it makes Russia's fall look even worse, based on direct comparisons.
The country’s natural comparison is with the BRIC countries — Brazil, Russia, India and China. In the first half of 2009, China and India have been surging ahead, while Russia’s GDP fell off the cliff by 10 percent.
Russia’s economy remains reliant by oil and gas, and its overall government policies depend heavily on the worldwide oil price. Three standard scenarios were formulated in the official Strategy 2020 program. The favored “innovation scenario” was supposed to generate an annual growth of 6.5 percent. It presupposed far-reaching reforms and investment in human capital, which is not a plausible option with an oil price above $60 per barrel.
The Kremlin’s negative “inertia scenario” assumed no significant reforms and forecasted an average growth of 3.9 percent a year. Such an authoritarian petrostate is likely if the oil price is $75 per barrel. In between, the Kremlin put an “energy and raw materials scenario” with 5.3 percent growth, which could be called status quo with an oil price of $60 to $75 per barrel, but such a policy is not likely to generate a high growth rate.
The the major thing to learn is that the higher the oil price is, the lower Russia’s long-term economic growth is likely to be, because the ruling elite will thrive on energy rents rather than pursue reforms or invest in human capital. The greater the corruption is, the more repression the rulers need to defend their fraudulent revenues.
Russia’s course is hard to figure out because overt economic policy changes every few months with the oil price. During the period from May to July 2008, the inauguration of President Dmitry Medvedev raised hopes that he would initiate economic and political reforms — particularly as it related to his anti-corruption initiatives — but we saw no important changes.
Prime Minister Vladimir Putin intimidated Mechel in late July, threatening to send a “doctor” to clean out the company’s problems, and the war in Georgia two weeks later augured a period of darkness and reaction. Russia’s attempts to accede to the World Trade Organization were suspended and a renationalization of leading companies became a priority.
But the devastation caused by the financial crisis and gradual devaluation allowed reformist ideas to surface again. Russia saw a renewed openness from February until May that could almost be labeled a thaw, but again no legislation was passed.
In early June, the oil price surpassed $70 per barrel, and the reactionaries got into action again. In Pikalyovo, Putin declared the not very market-oriented view that private businessmen have to produce for the sake of producing. Numerous governors threatened private enterprise owners with confiscation if they did not rehire workers and keep decrepit factories alive. Several weeks later, Putin suspended Russia’s attempted accession to the WTO and he even went on a personal tour to control sausage prices. Naturally, rumors are ripe of possible new confiscations of large corporations.
This is a terrible to run economic policy. In effect, Russia is pursuing the status quo or inertia scenario — but without the benefit of stability. With its quarterly swings in declared economic policy, the government destabilizes the business environment and fails to carry out any economic policy. Both the vagaries and passivity are dangerous to the country’s economy as is evident from the extraordinary fall in GDP. No wonder that not only China and India but also Brazil are much more successful.
Russia’s only sensible policy has been its fiscal policy with a persistent budget surplus in the good times from 2000 until 2008, which allowed it to build huge international reserves that, while reduced, remain at roughly $400 billion today. This means that Russia can safeguard itself from some fluctuations of the global financial market.
But it is not doing so. On the contrary, it is causing unnecessary domestic financial problems. The ultimate folly was Russia’s gradual devaluation during the period from November to January. Naturally, everybody speculated against the ruble, which meant that the Kremlin instigated a domestic liquidity freeze. It was probably the main reason for the excessively sharp drop in Russia’s industrial output. Amazingly, this operation is officially hailed as a success,ensuring that the danger of a continuation could persist.
The state-dominated banking system remains a disaster. The five dominant state banks are in horrid shape. The government pours more and more money into them, but it helps little as the banks lose it in short order on politically motivated, nonperforming loans. The state banks pose a threat of nationalizing big Russian companies, while they provide little credit. In effect, the Kremlin maintains a detrimental liquidity squeeze.
Senior officials interfere however they want to in big enterprises, asking them to hire more workers, to reduce prices and to expand production under threat of confiscation, further undermining the country’s weak property rights.
Gazprom appears to be the greatest management failure of them all. It is difficult to fathom how it has succeeded in scaring so many customers away in half a year that it has been forced to cut its output by 35 percent. In any other country, save Congo, such a harmful management would be fired without delay. There is no reason to expect any significant improvement as long as the managers remain the same.
Russia’s ultimate shortcoming is its pervasive top-level corruption. Remember that it has failed to extend its road network since 2000. A country that cannot build roads cannot develop much more.
There is no doubt that Russia will recover somewhat because of higher oil prices, the global recovery and recovering exports, but nothing has been done about the country’s profound structural problems, which have only been aggravated during a year of financial crisis. Worse, Russia’s economic policy is in such flux that nothing is being done. Gradually, the question is moving from complaints about how Russia is being governed to criticism that it is not being properly managed.
Russia continues to struggle most among BRIC nations
Thursday, July 23, 2009
BRIC Illusion from Stimulus
BRIC business
We have to remember that a portion of the Chinese stimulus is being funneled into both stock market and real estate speculation... in fact the powers that be have gone ahead and quantified how much they believe it is. I'd argue the same is being done in the US at least towards the stock market but unlike the Chinese who admit it, the secretative government of the US won't. Always a hoot when the Chinese are more transparent than the US.... wait, wasn't that an election theme? Transparency? Contrast "Chinese Government Economists" with "US Government Economists" who are fighting even an having an audit done on their all powerful entity.
Chinese new bank loans worth about an estimated 1.16 trillion yuan ($170 billion) were invested in the stock market in the first five months of this year, China Business News reported, citing a government economist.
That’s 20 percent of the 5.8 trillion yuan loans banks extended in the period, the Shanghai-based newspaper said, citing Wei Jianing, a deputy director at the macro-economics department of the Development and Research Center under China’s State Council.
“Where did it go? It’s undeniable that a portion of the lending may have flowed into stock and real estate markets and triggered the rebound in these two markets,” the former official said at a financial forum in Ningbo city in eastern China.
2 months ago (May 20, 2009: Year to Date Returns by Country - Go Peru!) the order was Russia, India, China, and Brazil - thankfully "stimulus" can work in many ways i.e. pushing stock markets ever upward.
China's Shanghai Composite is currently up 81%, down days in recent months have been few and far between. Even though rest of the BRIC (Brazil, Russia, India, China) countries have posted big gains year to date, China has broken away from the pack. Overbought has become the new norm for the Chinese equity market, and anyone that has bet on a pullback has gotten absolutely crushed. Remember, however, that the sharper the increase usually means the sharper the fall, so when a correction does finally come, watch out.
Anything to create the mirage of prosperity going, it'll be interesting to see what happens when the correction mauls the Chinese and other stimulus whores.
BRIC business
We have to remember that a portion of the Chinese stimulus is being funneled into both stock market and real estate speculation... in fact the powers that be have gone ahead and quantified how much they believe it is. I'd argue the same is being done in the US at least towards the stock market but unlike the Chinese who admit it, the secretative government of the US won't. Always a hoot when the Chinese are more transparent than the US.... wait, wasn't that an election theme? Transparency? Contrast "Chinese Government Economists" with "US Government Economists" who are fighting even an having an audit done on their all powerful entity.
Chinese new bank loans worth about an estimated 1.16 trillion yuan ($170 billion) were invested in the stock market in the first five months of this year, China Business News reported, citing a government economist.
That’s 20 percent of the 5.8 trillion yuan loans banks extended in the period, the Shanghai-based newspaper said, citing Wei Jianing, a deputy director at the macro-economics department of the Development and Research Center under China’s State Council.
“Where did it go? It’s undeniable that a portion of the lending may have flowed into stock and real estate markets and triggered the rebound in these two markets,” the former official said at a financial forum in Ningbo city in eastern China.
2 months ago (May 20, 2009: Year to Date Returns by Country - Go Peru!) the order was Russia, India, China, and Brazil - thankfully "stimulus" can work in many ways i.e. pushing stock markets ever upward.
China's Shanghai Composite is currently up 81%, down days in recent months have been few and far between. Even though rest of the BRIC (Brazil, Russia, India, China) countries have posted big gains year to date, China has broken away from the pack. Overbought has become the new norm for the Chinese equity market, and anyone that has bet on a pullback has gotten absolutely crushed. Remember, however, that the sharper the increase usually means the sharper the fall, so when a correction does finally come, watch out.
Anything to create the mirage of prosperity going, it'll be interesting to see what happens when the correction mauls the Chinese and other stimulus whores.
BRIC business
Tuesday, July 21, 2009
India Firms Getting Smarter?
BRIC Business India
A dramatic slowdown after many boom years worldwide has made Indian firms smarter in employee engagement and management, which will help it grow quicker when recovery begins, according to a study by global consulting firm Deloitte.
“Indian companies across sectors are trying to make the best of tough times and preparing for growth opportunities when the economy picks up. Unlike in the West where firing is the norm, our study shows Indian firms are focussing on talent management and cost cutting,” Deloitte director P. Thiruvengadam told IANS.
A survey across numerous industries on employee engagement in recessionary times by Deloitte’s human capital advisory services found Indian firms were in a wait-and-watch mode without retrenching, but trying to balance both employee and operational costs.
“Companies are focussing on their ability to attract, develop and retain top talent to remain viable and competitive in the short and long terms. Though campus offers have trickled down, selective hiring is taking place. Employees are being involved in cost management, quality and client servicing,” Thiruvengadam said quoting the findings.
Of the participant firms, 44 percent represented TMT (technology, media and telecom), 27 percent manufacturing, seven percent FMCG (fast moving consumer goods), five percent pharma and 27 percent others.
The study found companies implementing metrics to determine return on investment on human resources. Investment in proprietary knowledge and technological upgrade is continuing, albeit slower than during the boom times.
“Lower attrition has turned out to be a boon, as firms are able to retain talent by setting higher performance benchmarks, with stringent measures and quarterly monitoring. By recruiting consultants and freelancers, firms are able to save on employee benefit costs,” Thiruvengadam said.
The eight-week survey said companies were substituting lucrative bonus and international travel with opportunities for advancement and flexible working hours to retain employees.
“Smart firms have turned inward, consolidating operations, rationalising requirements and optimising resources to ride the slowdown,” Thiruvengadam said.
The survey also found companies were not cutting back on training programs but only cutting training costs. The focus is on empowering employees with multi-skills to handle different tasks and building a strong leadership pipeline.
BRIC Business India
A dramatic slowdown after many boom years worldwide has made Indian firms smarter in employee engagement and management, which will help it grow quicker when recovery begins, according to a study by global consulting firm Deloitte.
“Indian companies across sectors are trying to make the best of tough times and preparing for growth opportunities when the economy picks up. Unlike in the West where firing is the norm, our study shows Indian firms are focussing on talent management and cost cutting,” Deloitte director P. Thiruvengadam told IANS.
A survey across numerous industries on employee engagement in recessionary times by Deloitte’s human capital advisory services found Indian firms were in a wait-and-watch mode without retrenching, but trying to balance both employee and operational costs.
“Companies are focussing on their ability to attract, develop and retain top talent to remain viable and competitive in the short and long terms. Though campus offers have trickled down, selective hiring is taking place. Employees are being involved in cost management, quality and client servicing,” Thiruvengadam said quoting the findings.
Of the participant firms, 44 percent represented TMT (technology, media and telecom), 27 percent manufacturing, seven percent FMCG (fast moving consumer goods), five percent pharma and 27 percent others.
The study found companies implementing metrics to determine return on investment on human resources. Investment in proprietary knowledge and technological upgrade is continuing, albeit slower than during the boom times.
“Lower attrition has turned out to be a boon, as firms are able to retain talent by setting higher performance benchmarks, with stringent measures and quarterly monitoring. By recruiting consultants and freelancers, firms are able to save on employee benefit costs,” Thiruvengadam said.
The eight-week survey said companies were substituting lucrative bonus and international travel with opportunities for advancement and flexible working hours to retain employees.
“Smart firms have turned inward, consolidating operations, rationalising requirements and optimising resources to ride the slowdown,” Thiruvengadam said.
The survey also found companies were not cutting back on training programs but only cutting training costs. The focus is on empowering employees with multi-skills to handle different tasks and building a strong leadership pipeline.
BRIC Business India
Friday, July 17, 2009
BRIC Countries Very Different
Differences with BRIC countries
while it's true that BRIC countries hold a lot of potential, the idea of considering them the same is not good, as even though they have so much potential, each one is vastly different from the others, and that needs to be taken into consideration when considering investing in or building a business there.
So don't be fooled by the moniker BRIC, which lumps them together because of their potential, not because they're necessarily similar in any way.
They've never been all that similar, really. In fact, Standard & Poor's recently questioned "whether the BRIC [Brazil, Russia, India, China] countries ever shared much in common, other than scale and high portfolio inflows.
And when it comes to international investing, it's convention to lump countries into one of two categories: developed markets and emerging markets.
The exact distinction is hazy. Former Secretary-General of the U.N. Kofi Annan defines a developed market as "one that allows all its citizens to enjoy a free and healthy life in a safe environment." Political scientist Ian Bremmer defines an emerging market as "a country where politics matters at least as much as economics to the markets."
Basically, to be considered developed, a country needs a high standard of living that isn't continually threatened by political crisis. Besides the United States, think of countries such as Japan, France, and Australia.
The emerging markets are then split into the BRIC countries -- a term coined less than a decade ago by Goldman Sachs, because it was sexy to bundle together the four emerging-market countries that combined size with tremendous growth prospects -- and everyone else.
All of that splitting and grouping gives investors the false sense that the BRIC countries are essentially interchangeable: emerging, large, poised for growth.
Gross domestic product per person is one way to gauge the standard of living and productivity of a country -- and this demonstrates just how different these countries really are.
The emerging markets are quite different from the developed market -- the U.S.'s GDP per person is almost 17 times greater than India's -- but the chart also shows the great disparity among the BRIC countries. Russia is more than five times as prosperous as India, and even China is roughly two times so.
You also have to factor in the country's political situation, overall economic stability, market conditions, cultural differences, and still more economic data such as national debt, balance of trade, inflation, savings rates, etc.
In other words, in international investing, country differences are at least as important as company differences -- because any potential a company has depends on the context of its location.
It could be argued that Suntech Power's fortunes are more closely linked to its fellow Chinese company China Mobile than to its American industry mate, First Solar.
Because country-specific considerations frequently outweigh industry-specific considerations. Ask any company that has been subject to onerous regulation, excessive taxation, a devalued currency, or nationalization by its home country.
Or ask any company that has opened up shop outside its home country. Imagine McDonald’s dilemma when it opened its first restaurant in India -- a country where cows are sacred. The answer, of course, was to modify its menu significantly. Wal-Mart recently opened its first store in India as well, incorporating Bollywood music and local cuisine as well as making concessions to mom-and-pop shops that wouldn’t even be considered in the U.S.
The substantial differences between countries -- not to mention between developed and emerging economies -- lead to several takeaways:
Because of the addition of tricky country-specific dynamics, diversification may be even more important in international investing than it is in domestic investing.
Emerging markets demand a greater risk premium than their developed counterparts. In other words, you should demand a larger margin of safety for companies in emerging markets.
It isn't enough just to search out the financial statements of a company and its competitors. Knowledge of a company's country is just as important as knowledge of the company itself.
No matter, Brazil, Russia, India and China have a lot of potential, if we take into account that we can't consider them similar in any way as far as the way the countries operate and the culture is, we should do ok in whatever business or investing we do with BRIC countries.
Differences with BRIC countries
while it's true that BRIC countries hold a lot of potential, the idea of considering them the same is not good, as even though they have so much potential, each one is vastly different from the others, and that needs to be taken into consideration when considering investing in or building a business there.
So don't be fooled by the moniker BRIC, which lumps them together because of their potential, not because they're necessarily similar in any way.
They've never been all that similar, really. In fact, Standard & Poor's recently questioned "whether the BRIC [Brazil, Russia, India, China] countries ever shared much in common, other than scale and high portfolio inflows.
And when it comes to international investing, it's convention to lump countries into one of two categories: developed markets and emerging markets.
The exact distinction is hazy. Former Secretary-General of the U.N. Kofi Annan defines a developed market as "one that allows all its citizens to enjoy a free and healthy life in a safe environment." Political scientist Ian Bremmer defines an emerging market as "a country where politics matters at least as much as economics to the markets."
Basically, to be considered developed, a country needs a high standard of living that isn't continually threatened by political crisis. Besides the United States, think of countries such as Japan, France, and Australia.
The emerging markets are then split into the BRIC countries -- a term coined less than a decade ago by Goldman Sachs, because it was sexy to bundle together the four emerging-market countries that combined size with tremendous growth prospects -- and everyone else.
All of that splitting and grouping gives investors the false sense that the BRIC countries are essentially interchangeable: emerging, large, poised for growth.
Gross domestic product per person is one way to gauge the standard of living and productivity of a country -- and this demonstrates just how different these countries really are.
The emerging markets are quite different from the developed market -- the U.S.'s GDP per person is almost 17 times greater than India's -- but the chart also shows the great disparity among the BRIC countries. Russia is more than five times as prosperous as India, and even China is roughly two times so.
You also have to factor in the country's political situation, overall economic stability, market conditions, cultural differences, and still more economic data such as national debt, balance of trade, inflation, savings rates, etc.
In other words, in international investing, country differences are at least as important as company differences -- because any potential a company has depends on the context of its location.
It could be argued that Suntech Power's fortunes are more closely linked to its fellow Chinese company China Mobile than to its American industry mate, First Solar.
Because country-specific considerations frequently outweigh industry-specific considerations. Ask any company that has been subject to onerous regulation, excessive taxation, a devalued currency, or nationalization by its home country.
Or ask any company that has opened up shop outside its home country. Imagine McDonald’s dilemma when it opened its first restaurant in India -- a country where cows are sacred. The answer, of course, was to modify its menu significantly. Wal-Mart recently opened its first store in India as well, incorporating Bollywood music and local cuisine as well as making concessions to mom-and-pop shops that wouldn’t even be considered in the U.S.
The substantial differences between countries -- not to mention between developed and emerging economies -- lead to several takeaways:
Because of the addition of tricky country-specific dynamics, diversification may be even more important in international investing than it is in domestic investing.
Emerging markets demand a greater risk premium than their developed counterparts. In other words, you should demand a larger margin of safety for companies in emerging markets.
It isn't enough just to search out the financial statements of a company and its competitors. Knowledge of a company's country is just as important as knowledge of the company itself.
No matter, Brazil, Russia, India and China have a lot of potential, if we take into account that we can't consider them similar in any way as far as the way the countries operate and the culture is, we should do ok in whatever business or investing we do with BRIC countries.
Differences with BRIC countries
Thursday, July 16, 2009
China 2nd in Market Value
China second largest in market value - soars past Japan
China has swept past Japan as the world’s second-largest stock market according to value for the first time in 18 months, after government stimulus spending and record bank lending boosted share prices this year.
The Shanghai Composite Index rose 1.4 percent yesterday, sending the value of China’s domestic stock market to $3.21 trillion, compared with Japan’s $3.20 trillion. The Shanghai index has gained 75 percent this year, the best-performing major market, against a 5.5 percent advance in the Nikkei 225 Stock Average. The U.S. has the biggest equities market worth $10.8 trillion.
“China is just entering its stride and is still very much in a growth phase, while Japan is already a developed economy,” said Daphne Roth, Singapore-based head of Asian equity research at ABN Amro Private Banking.
China last passed Japan in stock-market capitalization from Jan. 4 to Jan. 24, 2008. The Shanghai Composite tripled in the two years leading to its record on Oct. 16, 2007, before tumbling 72 percent to its trough the following November.
Stimulus
A 4 trillion yuan ($585 billion) stimulus package and record bank lending has shielded the Chinese economy against a plunge in exports. Foreign-exchange reserves topped $2 trillion for the first time, while money supply rose a record 28.5 percent in June, the central bank said July 15. The economy expanded 7.9 percent in the second quarter, the statistics bureau said in Beijing today, more than the 7.8 percent median estimate of 20 economists.
New loans increased by five times in June year over year by 1.53 trillion yuan, increasing concern that attempts to revive the world’s third-largest economy will lead to bad debts and asset bubbles. Rapid credit growth poses risks for lenders and the financial system, Wang Huaqing, the disciplinary secretary of the China Banking Regulatory Commission.
BNP Paribas Securities (Asia) Ltd. last month cut its rating on China to “neutral” from “overweight,” citing valuations. Stocks on the benchmark index are trading at 33.2 times earnings, almost triple the 12.9 multiple on Nov. 4, when the measure dropped to its lowest since the financial crisis. Earnings per share declined 7 percent last year and will probably remain “flat” this year, the brokerage said.
“We share concerns that the corporate earnings recovery is not going to be very strong,” Erwin Sanft, head of China and Hong Kong equities research at BNP Paribas said. Some Chinese shares have soared by “1,000 percent from the bottom, so they’re pricing in a very strong rebound in earnings,” he said.
In Japan, continuing deflation and an aging population have sapped strength from what was once the world’s largest market by capitalization. During the 1990s, Japan spent 135 trillion yen on 10 economic stimulus plans and lowered interest rates to zero, none of which succeeded in promoting sustainable growth.
Japan’s economy shrank at a 14.2 percent annual rate in the first quarter, the most since data began in 1955. The country’s gross domestic output will shrink 3.4 percent in the year ending March 2010, the central bank predicted. The contraction coincided with a drop to a more-than 25-year low by the Topix index.
Japan’s Challenges
“Japan has two main problems; the enormous public debt handicaps the government’s ability to spend additional money to boost the economy and we are too reliant on exports,” said Takashi Kamiya, chief economist at T&D Asset Management Co. in Tokyo, which helps oversee some $16 billion. “There’s no way to expect the emergence of a domestic growth driver that can propel us out of this funk.”
Chinese companies account for four of the 10 biggest companies when measured by market value, according to Bloomberg data. Toyota Motor Corp. is the top-ranked Japanese company, at 25th, worth about one third the capitalization of PetroChina Co., the world No. 1.
Japan is a good example of not using stimulus packages to attempt to generate sustainable growth, only the business sector can do that.
China second largest in market value
China has swept past Japan as the world’s second-largest stock market according to value for the first time in 18 months, after government stimulus spending and record bank lending boosted share prices this year.
The Shanghai Composite Index rose 1.4 percent yesterday, sending the value of China’s domestic stock market to $3.21 trillion, compared with Japan’s $3.20 trillion. The Shanghai index has gained 75 percent this year, the best-performing major market, against a 5.5 percent advance in the Nikkei 225 Stock Average. The U.S. has the biggest equities market worth $10.8 trillion.
“China is just entering its stride and is still very much in a growth phase, while Japan is already a developed economy,” said Daphne Roth, Singapore-based head of Asian equity research at ABN Amro Private Banking.
China last passed Japan in stock-market capitalization from Jan. 4 to Jan. 24, 2008. The Shanghai Composite tripled in the two years leading to its record on Oct. 16, 2007, before tumbling 72 percent to its trough the following November.
Stimulus
A 4 trillion yuan ($585 billion) stimulus package and record bank lending has shielded the Chinese economy against a plunge in exports. Foreign-exchange reserves topped $2 trillion for the first time, while money supply rose a record 28.5 percent in June, the central bank said July 15. The economy expanded 7.9 percent in the second quarter, the statistics bureau said in Beijing today, more than the 7.8 percent median estimate of 20 economists.
New loans increased by five times in June year over year by 1.53 trillion yuan, increasing concern that attempts to revive the world’s third-largest economy will lead to bad debts and asset bubbles. Rapid credit growth poses risks for lenders and the financial system, Wang Huaqing, the disciplinary secretary of the China Banking Regulatory Commission.
BNP Paribas Securities (Asia) Ltd. last month cut its rating on China to “neutral” from “overweight,” citing valuations. Stocks on the benchmark index are trading at 33.2 times earnings, almost triple the 12.9 multiple on Nov. 4, when the measure dropped to its lowest since the financial crisis. Earnings per share declined 7 percent last year and will probably remain “flat” this year, the brokerage said.
“We share concerns that the corporate earnings recovery is not going to be very strong,” Erwin Sanft, head of China and Hong Kong equities research at BNP Paribas said. Some Chinese shares have soared by “1,000 percent from the bottom, so they’re pricing in a very strong rebound in earnings,” he said.
In Japan, continuing deflation and an aging population have sapped strength from what was once the world’s largest market by capitalization. During the 1990s, Japan spent 135 trillion yen on 10 economic stimulus plans and lowered interest rates to zero, none of which succeeded in promoting sustainable growth.
Japan’s economy shrank at a 14.2 percent annual rate in the first quarter, the most since data began in 1955. The country’s gross domestic output will shrink 3.4 percent in the year ending March 2010, the central bank predicted. The contraction coincided with a drop to a more-than 25-year low by the Topix index.
Japan’s Challenges
“Japan has two main problems; the enormous public debt handicaps the government’s ability to spend additional money to boost the economy and we are too reliant on exports,” said Takashi Kamiya, chief economist at T&D Asset Management Co. in Tokyo, which helps oversee some $16 billion. “There’s no way to expect the emergence of a domestic growth driver that can propel us out of this funk.”
Chinese companies account for four of the 10 biggest companies when measured by market value, according to Bloomberg data. Toyota Motor Corp. is the top-ranked Japanese company, at 25th, worth about one third the capitalization of PetroChina Co., the world No. 1.
Japan is a good example of not using stimulus packages to attempt to generate sustainable growth, only the business sector can do that.
China second largest in market value
BRICS Auto Parts Focus
BRIC and Auto Parts
Globally, the auto-parts industry is running on a major flat, experiencing a blowout of demand due to production cuts at struggling vehicle manufacturers. They’re expected to slash auto-part employment in this country by more than a third this year, according to the Conference Board of Canada. But unlike Michigan’s Lear Corp., which just joined its home-state competitor Visteon Corp. in seeking Chapter 11 protection from creditors, Frank Stronach’s Magna International Inc. isn’t cruising in crisis mode. Instead, the Aurora, Ont.–based company, the third-largest and most diversified automotive supplier on the planet, is looking to feast on industry road kill.
Launched in a Toronto garage by Stronach about five decades ago, Magna hasn’t been immune to sector woes. The company, which has been forced to shutter plants and eliminate thousands of jobs, posted a net loss of US$200 million in the first quarter, when light-vehicle production in North America and Europe plummeted 50% and 40%, respectively. Sales dropped to US$3.6 billion, a 46% decline from Q1 2008 — when Magna reported a gain of US $207 million.
But Stronach’s operation, which employs 70,000 people in 25 countries, has a non-union culture, so it doesn’t face the labour cost issues that helped park General Motors and Chrysler (which jointly accounted for 30% of Magna’s Q1 sales) in bankruptcy court this year. Like Canada’s other two major sector plays — Martinrea International Inc. (TSX: MRE) and Linamar Corp. (TSX: LNR) — Magna is free to rev up M&A activity because it is fuelled by a healthy balance sheet.
Unlike the competition, however, Magna is chaired by Stronach, who controls the company via controversial dual shares that turn off institutional investors. And he is raising eyebrows by voicing a desire to shift his auto empire’s gears by ramping up assembly operations. In other words, Stronach apparently thinks it is a good idea for Magna — which currently builds outsourced vehicles at a single assembly plant in Austria — to compete head-to-head with customers in emerging and developed markets alike.
In May, Magna and Moscow-based Sberbank made a joint non-binding bid for control of Germany’s Adam Opel GmbH, the main arm of GM’s European operations. If completed, the Kremlin-controlled lender is expected to transfer its stake to Oleg Deripaska, an oligarch with auto interests, not to mention friends in Moscow, who would then open the door to a rapid Magna expansion into Russia.
The $700-plus-million Opel play isn’t the first time Magna has appeared willing to roll the dice on a major expansion of assembly operations. At the company’s annual general meeting this year, Stronach admitted the company “dodged a bullet” by losing the bidding war for Chrysler two years ago. The focus on Russia also isn’t new. In 2007, Stronach cut a deal to share control of Magna with Deripaska, who invested US$1.5 billion in the Canadian firm at the time. But the Russian’s direct involvement with the company ended late last year, when a liquidity crisis forced a sale of his equity stake.
According to Magna spokeswoman Tracy Fuerst, the “working relationship” with Deripaska’s GAZ auto-making group has remained strong. Still, Magna’s renewed focus on Russia and eagerness to compete with customers is generating mixed reviews. “Not many investors we speak with seem terribly anxious about a potential Magna-Opel tie-up,” Itay Michaeli, an analyst with Citigroup Global Markets, declared in a research note. He argues the Opel deal represents a “low-risk” investment that would, if completed, generate future goodwill with GM.
But other industry watchers see the Opel bid as a high-risk strategy, which is why 12-month analyst stock price targets are all over the map, ranging from $32.74 to $59.03. (At press time the stock was trading around $48.)
Clearly, not all of Magna’s customers are happy over the company’s play to become a full-blown automaker.
While bidding for Chrysler, Stronach could at least claim he was out to aid a troubled client. Opel, however, attracted other suitors, including Beijing Automotive Industry Holding Corp. And even if Magna doesn’t close the deal, it still threw a wrench in Chrysler’s survival plan — since the Canadian bid put Fiat out of the running, and the Italian car company had hoped to buy Opel as part of the strategy it developed when agreeing to take over the Detroit automaker. Shawn Morgan, a Chrysler spokeswoman, declined to comment on the company’s relationship with Magna. But Volkswagen has said it is watching developments with some apprehension.
Carlos Gomes, an auto-sector analyst with Scotia Capital, Magna’s focus on Russia could also prove to be riskier than deal supporters want to admit. He acknowledges that Russia has a low vehicle-penetration rate (about 180 vehicles per 1,000 people), compared with roughly 560 vehicles in western Europe, so the potential is enormous if its energy-dependent economy recovers. Still, he thinks “Russia likely has the weakest outlook among the BRIC nations because of declining population.”
Bill Witherell, an adviser to the Organisation for Economic Co-operation and Development and chief economist with New Jersey–based Cumberland Advisors, is also bearish on the Russian economy, which is projected to decline 8.5% this year. He thinks emerging-market strategists should focus on BIC economies, noting Russia — where IKEA recently suspended operations due to the “unpredictable character” of administrative procedures — sits between Syria and Kenya on the 2008 Corruption Perceptions Index.
Michael Willemse, an Toronto-based analyst with CIBC World Markets, says Magna shareholders are obviously uncomfortable with the Opel bid. But he thinks a related sell-off that weakened the share price was probably overdone. Simply put, he doesn’t believe Magna’s co-CEOs — Don Walker and Siegfried Wolf — would be willing “to inject a material amount above the original investment,” which would be inconsistent with “Magna’s desire to maintain a strong balance sheet.” If Magna’s management was blindly focused on becoming a global automaker, Willemse argues the company would have been more aggressive pursuing other deals over the past two years. But he admits there is a risk that Stronach has taken the wheel from his CEOs to drive Magna into auto-making in a major way.
BRIC and Auto Parts
Globally, the auto-parts industry is running on a major flat, experiencing a blowout of demand due to production cuts at struggling vehicle manufacturers. They’re expected to slash auto-part employment in this country by more than a third this year, according to the Conference Board of Canada. But unlike Michigan’s Lear Corp., which just joined its home-state competitor Visteon Corp. in seeking Chapter 11 protection from creditors, Frank Stronach’s Magna International Inc. isn’t cruising in crisis mode. Instead, the Aurora, Ont.–based company, the third-largest and most diversified automotive supplier on the planet, is looking to feast on industry road kill.
Launched in a Toronto garage by Stronach about five decades ago, Magna hasn’t been immune to sector woes. The company, which has been forced to shutter plants and eliminate thousands of jobs, posted a net loss of US$200 million in the first quarter, when light-vehicle production in North America and Europe plummeted 50% and 40%, respectively. Sales dropped to US$3.6 billion, a 46% decline from Q1 2008 — when Magna reported a gain of US $207 million.
But Stronach’s operation, which employs 70,000 people in 25 countries, has a non-union culture, so it doesn’t face the labour cost issues that helped park General Motors and Chrysler (which jointly accounted for 30% of Magna’s Q1 sales) in bankruptcy court this year. Like Canada’s other two major sector plays — Martinrea International Inc. (TSX: MRE) and Linamar Corp. (TSX: LNR) — Magna is free to rev up M&A activity because it is fuelled by a healthy balance sheet.
Unlike the competition, however, Magna is chaired by Stronach, who controls the company via controversial dual shares that turn off institutional investors. And he is raising eyebrows by voicing a desire to shift his auto empire’s gears by ramping up assembly operations. In other words, Stronach apparently thinks it is a good idea for Magna — which currently builds outsourced vehicles at a single assembly plant in Austria — to compete head-to-head with customers in emerging and developed markets alike.
In May, Magna and Moscow-based Sberbank made a joint non-binding bid for control of Germany’s Adam Opel GmbH, the main arm of GM’s European operations. If completed, the Kremlin-controlled lender is expected to transfer its stake to Oleg Deripaska, an oligarch with auto interests, not to mention friends in Moscow, who would then open the door to a rapid Magna expansion into Russia.
The $700-plus-million Opel play isn’t the first time Magna has appeared willing to roll the dice on a major expansion of assembly operations. At the company’s annual general meeting this year, Stronach admitted the company “dodged a bullet” by losing the bidding war for Chrysler two years ago. The focus on Russia also isn’t new. In 2007, Stronach cut a deal to share control of Magna with Deripaska, who invested US$1.5 billion in the Canadian firm at the time. But the Russian’s direct involvement with the company ended late last year, when a liquidity crisis forced a sale of his equity stake.
According to Magna spokeswoman Tracy Fuerst, the “working relationship” with Deripaska’s GAZ auto-making group has remained strong. Still, Magna’s renewed focus on Russia and eagerness to compete with customers is generating mixed reviews. “Not many investors we speak with seem terribly anxious about a potential Magna-Opel tie-up,” Itay Michaeli, an analyst with Citigroup Global Markets, declared in a research note. He argues the Opel deal represents a “low-risk” investment that would, if completed, generate future goodwill with GM.
But other industry watchers see the Opel bid as a high-risk strategy, which is why 12-month analyst stock price targets are all over the map, ranging from $32.74 to $59.03. (At press time the stock was trading around $48.)
Clearly, not all of Magna’s customers are happy over the company’s play to become a full-blown automaker.
While bidding for Chrysler, Stronach could at least claim he was out to aid a troubled client. Opel, however, attracted other suitors, including Beijing Automotive Industry Holding Corp. And even if Magna doesn’t close the deal, it still threw a wrench in Chrysler’s survival plan — since the Canadian bid put Fiat out of the running, and the Italian car company had hoped to buy Opel as part of the strategy it developed when agreeing to take over the Detroit automaker. Shawn Morgan, a Chrysler spokeswoman, declined to comment on the company’s relationship with Magna. But Volkswagen has said it is watching developments with some apprehension.
Carlos Gomes, an auto-sector analyst with Scotia Capital, Magna’s focus on Russia could also prove to be riskier than deal supporters want to admit. He acknowledges that Russia has a low vehicle-penetration rate (about 180 vehicles per 1,000 people), compared with roughly 560 vehicles in western Europe, so the potential is enormous if its energy-dependent economy recovers. Still, he thinks “Russia likely has the weakest outlook among the BRIC nations because of declining population.”
Bill Witherell, an adviser to the Organisation for Economic Co-operation and Development and chief economist with New Jersey–based Cumberland Advisors, is also bearish on the Russian economy, which is projected to decline 8.5% this year. He thinks emerging-market strategists should focus on BIC economies, noting Russia — where IKEA recently suspended operations due to the “unpredictable character” of administrative procedures — sits between Syria and Kenya on the 2008 Corruption Perceptions Index.
Michael Willemse, an Toronto-based analyst with CIBC World Markets, says Magna shareholders are obviously uncomfortable with the Opel bid. But he thinks a related sell-off that weakened the share price was probably overdone. Simply put, he doesn’t believe Magna’s co-CEOs — Don Walker and Siegfried Wolf — would be willing “to inject a material amount above the original investment,” which would be inconsistent with “Magna’s desire to maintain a strong balance sheet.” If Magna’s management was blindly focused on becoming a global automaker, Willemse argues the company would have been more aggressive pursuing other deals over the past two years. But he admits there is a risk that Stronach has taken the wheel from his CEOs to drive Magna into auto-making in a major way.
BRIC and Auto Parts
Wednesday, July 15, 2009
BRIC Outsourcing Business
China place in BRIC offshore services
BRIC Business
China's fast growth as an economic power has brought new businesses and created an outsourcing industry to support them. This industry also has the capacity to support firms outside China by offering IT services.
China is one of a group of emerging economies which also includes Brazil, Russia and India. These countries, known as the BRIC countries, have been touted as potential new regions to offshore services.
India is the leader among outsourcing in BRIC countries. China has the potential to become India's nearest rival, but it has major cultural and legal hurdles to overcome, which will take time.
The Chinese government is supporting the development of its offshore Business Process Outsourcing (BPO) industry through legislative changes and incentives.
These include a tax policy that favors offshore services, training funds and interest-free loans.
The Chinese offshore service providers often support other service providers with low-cost business processing. But it is now ready to take a more prominent front line role.
Chinese providers have grown up in a short space of time and are now in a position to deal with Western companies direct. This, he says, is a result of the growth in China's economy
If Chinese company's want to follow the example set by their Indian peers they will have to ensure they are ready before they commit to providing extensive services, according to Andy Gallagher, consultant at Compass managing Consultants.
If the Satyam fraud scandal, where the Indian IT service provider's former chairman admitted to cooking the books, had happened a few years ago, India would have struggled to get where it is today.
To become a frontline service provider, Chinese companies must develop their brand and be more than just an offshore service for a more established offshore service provider.
China has the potential to be the next India but it will take a long time.
Gallagher at Compass Consulting says this approach can help overcome cultural obstacle. "They have to establish a credible national presence in these countries, which are run by locals."
Peter Brudenall, outsourcing Lawyer at Hunton & Williams, said China does not have the language skills and major project management skills that India has. But he says there are also major legal issues to overcome before China will be seen as a trusted destination for offshore IT services.
Robert Morgan, director at Hamilton Bailey, says China is a long way off being able to provide frontline services. "China is not anywhere near ready because of the physical environment and the cultural differences."
He says that there are isolated pockets where companies provide specific outsourcing services, which have often been set up by the customers. But he says China will struggle to match India because there are no Chinese entrepreneurs investing in this industry, only the government.
He adds that the communications infrastructure and language barrier pose major problems for China's development as an offshore services destination.
China needs an industry body to support outsourced service providers in the mould of Nasscom in India if it is to overcome this problem.
BRIC Business - Offshore Services
BRIC Business
China's fast growth as an economic power has brought new businesses and created an outsourcing industry to support them. This industry also has the capacity to support firms outside China by offering IT services.
China is one of a group of emerging economies which also includes Brazil, Russia and India. These countries, known as the BRIC countries, have been touted as potential new regions to offshore services.
India is the leader among outsourcing in BRIC countries. China has the potential to become India's nearest rival, but it has major cultural and legal hurdles to overcome, which will take time.
The Chinese government is supporting the development of its offshore Business Process Outsourcing (BPO) industry through legislative changes and incentives.
These include a tax policy that favors offshore services, training funds and interest-free loans.
The Chinese offshore service providers often support other service providers with low-cost business processing. But it is now ready to take a more prominent front line role.
Chinese providers have grown up in a short space of time and are now in a position to deal with Western companies direct. This, he says, is a result of the growth in China's economy
If Chinese company's want to follow the example set by their Indian peers they will have to ensure they are ready before they commit to providing extensive services, according to Andy Gallagher, consultant at Compass managing Consultants.
If the Satyam fraud scandal, where the Indian IT service provider's former chairman admitted to cooking the books, had happened a few years ago, India would have struggled to get where it is today.
To become a frontline service provider, Chinese companies must develop their brand and be more than just an offshore service for a more established offshore service provider.
China has the potential to be the next India but it will take a long time.
Gallagher at Compass Consulting says this approach can help overcome cultural obstacle. "They have to establish a credible national presence in these countries, which are run by locals."
Peter Brudenall, outsourcing Lawyer at Hunton & Williams, said China does not have the language skills and major project management skills that India has. But he says there are also major legal issues to overcome before China will be seen as a trusted destination for offshore IT services.
Robert Morgan, director at Hamilton Bailey, says China is a long way off being able to provide frontline services. "China is not anywhere near ready because of the physical environment and the cultural differences."
He says that there are isolated pockets where companies provide specific outsourcing services, which have often been set up by the customers. But he says China will struggle to match India because there are no Chinese entrepreneurs investing in this industry, only the government.
He adds that the communications infrastructure and language barrier pose major problems for China's development as an offshore services destination.
China needs an industry body to support outsourced service providers in the mould of Nasscom in India if it is to overcome this problem.
BRIC Business - Offshore Services
Tuesday, July 14, 2009
BRICs boost emerging-market ETFs
BRICs boost emerging-market ETFs
Emerging-market exchange-traded funds, or ETFs, are becoming increasingly specialized, attracting robust global inflows and interest, even as high specialization is highly risky.
A few developed-world ETFs have closed as they were thought to be too narrowly focused. Emerging-market ETFs appear to have measured their concentrations, taking into account the risks in becoming so narrowly focused that too many potential investors are left out.
The allure of ETFs lies in the immediate exposure to market trends, while also mitigating risk when venturing into unfamiliar asset classes, said J.P. Natkin, a managing director in emerging market sales at Credit Agricole Cheuvreux North America, Inc.
Last week, Barclays Global Investors' iShares launched the S&P Emerging Markets Infrastructure Index Fund, as "global infrastructure spending is set at $30 to $40 trillion in the next two decades," said Dina Ting, a principal at iShares Portfolio Management, who oversees $50 billion of assets for emerging markets and global real estate ETFs.
In early June, iShares launched the first dedicated Peruvian ETF, the MSCI All Peru Capped Index Fund (EPU). The fund started out with $2.5 million under management and, in less than a month, this has swelled to $22 million, Ting said.
Speaking at the New York Stock Exchange Monday after ringing the opening bell, Peruvian Finance Minister Luis Carranza said the fund will draw "enormous" liquidity to the local market soon.
Continuing to maintain that, iShares aims to account for the risk of over-specialization.
The first emerging-markets fund iShares launched was a dedicated Mexico fund in 1996. As of late June, the MSCI Mexico Investable Market Index Fund (EWW) had $550 million in assets.
ETFs have gained growing acceptance from institutional and retail investors, as people are placing a much higher premium on liquidity - a boon to often-volatile emerging-market investments.
In 2004, U.S.-based ETFs investing in emerging markets had a relatively small $4.7 billion under management. By June 30, 2008, that had ballooned to $69.7 billion, and to $78.5 billion in June 2009.
At the end of June, iShares broad-based emerging market fund captured $28.5 billion, while the iShares MSCI Brazil Index Fund (EWZ) has $8.6 billion in assets, capturing a large amount of total ETF market share.
The return on emerging-market ETFs for the year to date "has been slightly higher due to the number of BRIC-focused funds that performed exceptionally well," said Bradley Kay, ETF analyst for Morningstar in Chicago. BRIC refers to Brazil, Russia, India and China.
Along with Barclays, PowerShares, SPDR S&P, Vanguard and WisdomTree all have dedicated emerging-market ETFs. Some of the offerings include PowerShares Middle East and North Africa Frontier Countries and Vanguard Emerging Markets Stock ETF.
As a measure of growing popularity, trading volume in iShares emerging-market funds have grown 127% in the first half of 2009 over the same period last year, from 8.5 billion shares to 19.4 billion shares.
BRICs boost emerging-market ETFs
Emerging-market exchange-traded funds, or ETFs, are becoming increasingly specialized, attracting robust global inflows and interest, even as high specialization is highly risky.
A few developed-world ETFs have closed as they were thought to be too narrowly focused. Emerging-market ETFs appear to have measured their concentrations, taking into account the risks in becoming so narrowly focused that too many potential investors are left out.
The allure of ETFs lies in the immediate exposure to market trends, while also mitigating risk when venturing into unfamiliar asset classes, said J.P. Natkin, a managing director in emerging market sales at Credit Agricole Cheuvreux North America, Inc.
Last week, Barclays Global Investors' iShares launched the S&P Emerging Markets Infrastructure Index Fund, as "global infrastructure spending is set at $30 to $40 trillion in the next two decades," said Dina Ting, a principal at iShares Portfolio Management, who oversees $50 billion of assets for emerging markets and global real estate ETFs.
In early June, iShares launched the first dedicated Peruvian ETF, the MSCI All Peru Capped Index Fund (EPU). The fund started out with $2.5 million under management and, in less than a month, this has swelled to $22 million, Ting said.
Speaking at the New York Stock Exchange Monday after ringing the opening bell, Peruvian Finance Minister Luis Carranza said the fund will draw "enormous" liquidity to the local market soon.
Continuing to maintain that, iShares aims to account for the risk of over-specialization.
The first emerging-markets fund iShares launched was a dedicated Mexico fund in 1996. As of late June, the MSCI Mexico Investable Market Index Fund (EWW) had $550 million in assets.
ETFs have gained growing acceptance from institutional and retail investors, as people are placing a much higher premium on liquidity - a boon to often-volatile emerging-market investments.
In 2004, U.S.-based ETFs investing in emerging markets had a relatively small $4.7 billion under management. By June 30, 2008, that had ballooned to $69.7 billion, and to $78.5 billion in June 2009.
At the end of June, iShares broad-based emerging market fund captured $28.5 billion, while the iShares MSCI Brazil Index Fund (EWZ) has $8.6 billion in assets, capturing a large amount of total ETF market share.
The return on emerging-market ETFs for the year to date "has been slightly higher due to the number of BRIC-focused funds that performed exceptionally well," said Bradley Kay, ETF analyst for Morningstar in Chicago. BRIC refers to Brazil, Russia, India and China.
Along with Barclays, PowerShares, SPDR S&P, Vanguard and WisdomTree all have dedicated emerging-market ETFs. Some of the offerings include PowerShares Middle East and North Africa Frontier Countries and Vanguard Emerging Markets Stock ETF.
As a measure of growing popularity, trading volume in iShares emerging-market funds have grown 127% in the first half of 2009 over the same period last year, from 8.5 billion shares to 19.4 billion shares.
BRICs boost emerging-market ETFs
Saturday, July 11, 2009
Indonesia Wants to be Included in BRIC Nations
BRIC Business
The economy of Indonesia could double over the next six years as the world’s largest exporter of power- station coal and biggest producer of palm oil taps growing demand from India and China.
China, India and Indonesia will generate close to $10 trillion of wealth for investors by 2015, Nicholas Cashmore, head of Indonesia research at CLSA Asia-Pacific Markets, said in a note titled “Chindonesia: Enter the Komodo,” a reference to the reptile found only in eastern Indonesia. The three economies are Asia’s “next growth triangle,” he said.
Taking care of the growing needs of the world’s two most-populated nations as demand from Western countries slows may aid President Susilo Bambang Yudhoyono meet his goal of increasing growth to 7 percent in his second term. Indonesia wants be included among the BRIC nations of Brazil, Russia, India and China.
India’s industrial production grew at the quickest pace in eight months in May. The South Asian nation, the biggest buyer of Indonesia’s palm oil and cashew, may overtake China next year as the world’s fastest growing major economy.
BRIC Membership
China’s economy will enlarge by 7.2 percent in 2009 from a year earlier. Indonesia’s exports to China grew 16 percent last year, compared with a 10.7 percent expansion in demand from the U.S., the second-largest buyer of Indonesian products.
Indonesia’s economic boost provides a case for its being considered among the BRIC economies.
The $433 billion economy can expand “significantly” more than 7 percent once Yudhoyono fixes the nation’s congested roads, neglected ports and ageing power plants.
Yudhoyono is set to win a second term after presidential elections this week, providing the 59-year-old former general with a mandate to double spending on roads and power to $140 billion by 2014.
Congested Roads
Fixing Indonesia’s congested roads, neglected ports and ageing power plants needs to be among Yudhoyono’s highest priorities for him to reach his goal of increasing growth and reducing povertys.
He also needs to improve transparency in Indonesia’s legal system and reduce corruption to attract global investors, a survey found.
In 2007, Tata Power Co., which is building a 4,000-megawatt plant in western India, acquired a 30 percent stake in two coal mining units owned by Indonesia’s PT Bumi Resources. The $4.14 billion plant will run on coal from the Indonesian mines.
India’s coal imports will more than double to 100 million tons by 2012 from 40 million tons, estimates Kaamil Fareed, a senior trading manager at the Coal & Oil Group, which supplies coal in India and Pakistan. That’s about 40 percent of Indonesia’s estimated coal production for 2009.
BRIC Business
The economy of Indonesia could double over the next six years as the world’s largest exporter of power- station coal and biggest producer of palm oil taps growing demand from India and China.
China, India and Indonesia will generate close to $10 trillion of wealth for investors by 2015, Nicholas Cashmore, head of Indonesia research at CLSA Asia-Pacific Markets, said in a note titled “Chindonesia: Enter the Komodo,” a reference to the reptile found only in eastern Indonesia. The three economies are Asia’s “next growth triangle,” he said.
Taking care of the growing needs of the world’s two most-populated nations as demand from Western countries slows may aid President Susilo Bambang Yudhoyono meet his goal of increasing growth to 7 percent in his second term. Indonesia wants be included among the BRIC nations of Brazil, Russia, India and China.
India’s industrial production grew at the quickest pace in eight months in May. The South Asian nation, the biggest buyer of Indonesia’s palm oil and cashew, may overtake China next year as the world’s fastest growing major economy.
BRIC Membership
China’s economy will enlarge by 7.2 percent in 2009 from a year earlier. Indonesia’s exports to China grew 16 percent last year, compared with a 10.7 percent expansion in demand from the U.S., the second-largest buyer of Indonesian products.
Indonesia’s economic boost provides a case for its being considered among the BRIC economies.
The $433 billion economy can expand “significantly” more than 7 percent once Yudhoyono fixes the nation’s congested roads, neglected ports and ageing power plants.
Yudhoyono is set to win a second term after presidential elections this week, providing the 59-year-old former general with a mandate to double spending on roads and power to $140 billion by 2014.
Congested Roads
Fixing Indonesia’s congested roads, neglected ports and ageing power plants needs to be among Yudhoyono’s highest priorities for him to reach his goal of increasing growth and reducing povertys.
He also needs to improve transparency in Indonesia’s legal system and reduce corruption to attract global investors, a survey found.
In 2007, Tata Power Co., which is building a 4,000-megawatt plant in western India, acquired a 30 percent stake in two coal mining units owned by Indonesia’s PT Bumi Resources. The $4.14 billion plant will run on coal from the Indonesian mines.
India’s coal imports will more than double to 100 million tons by 2012 from 40 million tons, estimates Kaamil Fareed, a senior trading manager at the Coal & Oil Group, which supplies coal in India and Pakistan. That’s about 40 percent of Indonesia’s estimated coal production for 2009.
BRIC Business
Tuesday, July 7, 2009
Panasonic Growth In BRIC Countries
Panasonic Growth in BRIC Nations and Vietnam
Japan's Panasonic Corp announced it is looking for double-digit sales growth this fiscal year in the five major emerging markets it focuses on, including BRIC nations China and India, despite an estimated 10 percent fall in overall revenues.
"In our strategic markets of the BRIC nations and Vietnam, we aim for 13 percent growth by expanding our targets to people in the middle-income bracket," Panasonic President Fumio Ohtsubo told an annual shareholders' meeting on Thursday.
BRIC stands for the high-growth emerging markets of Brazil, Russia, India and China.
Panasonic was able to generate a small 2 percent sales growth to 420 billion yen ($4.4 billion) in the five countries in the fiscal year that ended on March 31, while it suffered a 14 percent fall in overall sales and an 86 percent plunge in operating profit as the global downturn dampened demand.
"It is extremely regrettable that we reported a sharp drop in sales and profit. As a person who is in charge of management, I sincerely apologise," Ohtsubo said.
"We are determined to meet shareholders' expectations by achieving stronger growth than competitors' when the economy recovers in the next business year onwards," he said.
Panasonic, which offers Viera flat TVs and Lumix digital cameras, vies with Sony Corp for the position as the world's largest consumer electronics maker.
Besides the BRIC nations and Vietnam, Panasonic has identified such countries as Mexico, Indonesia, Nigeria and Turkey as markets with strong growth potential and is preparing to increase its presence in those countries, Ohtsubo said.
He said its refrigerators and washing machines made a strong debut in Europe, where they were introduced in March, with unit sales exceeding its own targets by 21 percent in April and May. Shares in Panasonic, the world's largest plasma TV maker ahead of Samsung Electronics Co and LG Electronics were up 1.7 percent at 1,312 yen by late afternoon, underperforming the Nikkei average, which rose 2.7 percent.
Panasonic Growth in BRIC Nations and Vietnam
Japan's Panasonic Corp announced it is looking for double-digit sales growth this fiscal year in the five major emerging markets it focuses on, including BRIC nations China and India, despite an estimated 10 percent fall in overall revenues.
"In our strategic markets of the BRIC nations and Vietnam, we aim for 13 percent growth by expanding our targets to people in the middle-income bracket," Panasonic President Fumio Ohtsubo told an annual shareholders' meeting on Thursday.
BRIC stands for the high-growth emerging markets of Brazil, Russia, India and China.
Panasonic was able to generate a small 2 percent sales growth to 420 billion yen ($4.4 billion) in the five countries in the fiscal year that ended on March 31, while it suffered a 14 percent fall in overall sales and an 86 percent plunge in operating profit as the global downturn dampened demand.
"It is extremely regrettable that we reported a sharp drop in sales and profit. As a person who is in charge of management, I sincerely apologise," Ohtsubo said.
"We are determined to meet shareholders' expectations by achieving stronger growth than competitors' when the economy recovers in the next business year onwards," he said.
Panasonic, which offers Viera flat TVs and Lumix digital cameras, vies with Sony Corp for the position as the world's largest consumer electronics maker.
Besides the BRIC nations and Vietnam, Panasonic has identified such countries as Mexico, Indonesia, Nigeria and Turkey as markets with strong growth potential and is preparing to increase its presence in those countries, Ohtsubo said.
He said its refrigerators and washing machines made a strong debut in Europe, where they were introduced in March, with unit sales exceeding its own targets by 21 percent in April and May. Shares in Panasonic, the world's largest plasma TV maker ahead of Samsung Electronics Co and LG Electronics were up 1.7 percent at 1,312 yen by late afternoon, underperforming the Nikkei average, which rose 2.7 percent.
Panasonic Growth in BRIC Nations and Vietnam
Monday, July 6, 2009
Power Shifting to BRIC Nations
BRIC Business
Economic conditions brought about by clueless and ignorant Western countries has hastened the power shift to BRIC and surrounding countries, as misguided and foolish policies are quickly bringing about the end of their overall affluence and power.
It will take decades to work off the largest increase in debt since World War II. The political costs may be permanent, laid bare at this week’s Group of Eight summit of leading industrial powers.
Bank bailouts and recession-fighting measures will explode the debt of the advanced economies to at least 114 percent of gross domestic product in 2014, more than triple the 35 percent of the main emerging economies including China, the International Monetary Fund forecasts.
The run-up in debt is quickening a power shift that saps the industrial world’s authority to force its economic doctrine, currency arrangements or greenhouse-gas reduction strategies. Even some G-8 officials acknowledge that the group has lost its grip amid the global recession they birthed.
The eight-nation forum that starts tomorrow in L’Aquila, Italy is “a lot less relevant given its makeup and given developments in the world,” French Finance Minister Christine Lagarde said July 5. “Big players, like emerging economies, India, China or Mexico, are invited, but they’re given only a jump seat outside of the main summit.”
The industrial world is beset by the harshest economic conditions in a lifetime: a projected U.S. budget deficit of 13.6 percent of GDP in 2009, unmatched since World War II; an annualized 14.2 percent contraction in Japanese GDP in the first quarter, also the worst since the war; in the first three months of 2009, German exports had their steepest quarterly decline since 1970 when the data were first compiled.
Market Capitalization
Reflecting the relative fortunes of the G-8 and emerging markets, developing nations’ share of worldwide stock-market capitalization has climbed to a record 24 percent from 15 percent at the start of 2007 as investors piled into the fastest-growing economies.
While the surge in borrowing has prompted calls for alternatives to the dollar as a reserve currency, emerging- markets policy makers aren’t near consensus on a plausible option. Chinese Deputy Foreign Minister He Yafei said July 2 the dollar will reign supreme for “many years to come.”
Staunching the recession, combating climate change, promoting trade and dealing with Iran top the agenda of the G-8, a grouping of 880 million people with combined GDP of $32 trillion that includes the U.S., Japan, Germany, Britain, France, Italy, Canada and Russia.
Divisions persist over dialing back stimulus measures -- Germany says now is the time to begin curbing deficits -- and the scope of financial oversight. Britain opposes more intrusive market oversight proposed by the European Union.
‘Global Crisis’
“Different countries are pulling in different directions and that is, I think, quite troubling,” said Niall Ferguson, a history professor at Harvard University in Cambridge, Massachusetts. The uncoordinated response is “one of the classic symptoms of a global crisis.”
While the eight deliberate, leaders of five developing economies -- China, India, Brazil, Mexico and South Africa -- hold a parallel summit nearby before the G-8 meeting.
Led by China, the emerging economies don’t share the “somber fiscal outlook” of the affluent world, the IMF says. The IMF says the debt won’t be repaid as quickly as after World War II, which ended with debt topping 250 percent of GDP in the U.K., 200 percent in Japan and 100 percent in the U.S.
In wartime, governments exercised “comprehensive control” over the economy and citizens felt a “moral duty” to buy war bonds, the IMF said in a June 9 report.
Rich nations’ debt constituted 78 percent of GDP in 2006, the year before the financial crisis took hold, while emerging- markets debt has dipped from 38 percent, the IMF says.
Declining Leverage
The industrial world’s borrowing spree “decreases its ability to maneuver,” said Paul Hofheinz, president of the Lisbon Council, a Brussels research group.
Lesser-developed countries upstaged last year’s G-8 in Japan. Arguing that emissions cuts would stunt the economic growth that is lifting millions out of poverty, they forced through a joint statement entitling countries to tackle global warming according to their “respective capabilities.”
The climate clash will be rerun in L’Aquila, as the countdown starts to a United Nations summit in December to hammer out a replacement to the Kyoto Protocol.
Russia plays a dual role, straddling the G-8 and acting in concert with developing economies. In a sign of the shifting world order, Russia last month hosted the first-ever summit of the BRIC economies -- Brazil, Russia, India, China -- financiers of $1.1 trillion in U.S. Treasury debt as of April.
Medvedev’s Call
How much U.S. debt to keep remains in dispute. Russian President Dmitry Medvedev and Indian economic adviser Suresh Tendulkar have questioned the dollar’s dominance of the world’s $6.5 trillion in currency reserves.
The BRIC meetings failed to endorse a Russian call for diversification from the dollar, showing it is easier to denounce the U.S.-led world order than come up with a viable alternative.
“The credibility of the Anglo-Saxon model is under threat,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in a Web commentary last month. “Yet there are no ready substitutes that are able and willing to step in.”
There is an increasing call from BRIC nations to supplant the U.S. dollar as the reserve currency, even though no certainty as to what should be the replacement.
BRIC Business
Economic conditions brought about by clueless and ignorant Western countries has hastened the power shift to BRIC and surrounding countries, as misguided and foolish policies are quickly bringing about the end of their overall affluence and power.
It will take decades to work off the largest increase in debt since World War II. The political costs may be permanent, laid bare at this week’s Group of Eight summit of leading industrial powers.
Bank bailouts and recession-fighting measures will explode the debt of the advanced economies to at least 114 percent of gross domestic product in 2014, more than triple the 35 percent of the main emerging economies including China, the International Monetary Fund forecasts.
The run-up in debt is quickening a power shift that saps the industrial world’s authority to force its economic doctrine, currency arrangements or greenhouse-gas reduction strategies. Even some G-8 officials acknowledge that the group has lost its grip amid the global recession they birthed.
The eight-nation forum that starts tomorrow in L’Aquila, Italy is “a lot less relevant given its makeup and given developments in the world,” French Finance Minister Christine Lagarde said July 5. “Big players, like emerging economies, India, China or Mexico, are invited, but they’re given only a jump seat outside of the main summit.”
The industrial world is beset by the harshest economic conditions in a lifetime: a projected U.S. budget deficit of 13.6 percent of GDP in 2009, unmatched since World War II; an annualized 14.2 percent contraction in Japanese GDP in the first quarter, also the worst since the war; in the first three months of 2009, German exports had their steepest quarterly decline since 1970 when the data were first compiled.
Market Capitalization
Reflecting the relative fortunes of the G-8 and emerging markets, developing nations’ share of worldwide stock-market capitalization has climbed to a record 24 percent from 15 percent at the start of 2007 as investors piled into the fastest-growing economies.
While the surge in borrowing has prompted calls for alternatives to the dollar as a reserve currency, emerging- markets policy makers aren’t near consensus on a plausible option. Chinese Deputy Foreign Minister He Yafei said July 2 the dollar will reign supreme for “many years to come.”
Staunching the recession, combating climate change, promoting trade and dealing with Iran top the agenda of the G-8, a grouping of 880 million people with combined GDP of $32 trillion that includes the U.S., Japan, Germany, Britain, France, Italy, Canada and Russia.
Divisions persist over dialing back stimulus measures -- Germany says now is the time to begin curbing deficits -- and the scope of financial oversight. Britain opposes more intrusive market oversight proposed by the European Union.
‘Global Crisis’
“Different countries are pulling in different directions and that is, I think, quite troubling,” said Niall Ferguson, a history professor at Harvard University in Cambridge, Massachusetts. The uncoordinated response is “one of the classic symptoms of a global crisis.”
While the eight deliberate, leaders of five developing economies -- China, India, Brazil, Mexico and South Africa -- hold a parallel summit nearby before the G-8 meeting.
Led by China, the emerging economies don’t share the “somber fiscal outlook” of the affluent world, the IMF says. The IMF says the debt won’t be repaid as quickly as after World War II, which ended with debt topping 250 percent of GDP in the U.K., 200 percent in Japan and 100 percent in the U.S.
In wartime, governments exercised “comprehensive control” over the economy and citizens felt a “moral duty” to buy war bonds, the IMF said in a June 9 report.
Rich nations’ debt constituted 78 percent of GDP in 2006, the year before the financial crisis took hold, while emerging- markets debt has dipped from 38 percent, the IMF says.
Declining Leverage
The industrial world’s borrowing spree “decreases its ability to maneuver,” said Paul Hofheinz, president of the Lisbon Council, a Brussels research group.
Lesser-developed countries upstaged last year’s G-8 in Japan. Arguing that emissions cuts would stunt the economic growth that is lifting millions out of poverty, they forced through a joint statement entitling countries to tackle global warming according to their “respective capabilities.”
The climate clash will be rerun in L’Aquila, as the countdown starts to a United Nations summit in December to hammer out a replacement to the Kyoto Protocol.
Russia plays a dual role, straddling the G-8 and acting in concert with developing economies. In a sign of the shifting world order, Russia last month hosted the first-ever summit of the BRIC economies -- Brazil, Russia, India, China -- financiers of $1.1 trillion in U.S. Treasury debt as of April.
Medvedev’s Call
How much U.S. debt to keep remains in dispute. Russian President Dmitry Medvedev and Indian economic adviser Suresh Tendulkar have questioned the dollar’s dominance of the world’s $6.5 trillion in currency reserves.
The BRIC meetings failed to endorse a Russian call for diversification from the dollar, showing it is easier to denounce the U.S.-led world order than come up with a viable alternative.
“The credibility of the Anglo-Saxon model is under threat,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in a Web commentary last month. “Yet there are no ready substitutes that are able and willing to step in.”
There is an increasing call from BRIC nations to supplant the U.S. dollar as the reserve currency, even though no certainty as to what should be the replacement.
BRIC Business
Thursday, July 2, 2009
Only China and India Expected to Grow
BRIC Business
Of the 15 largest economies in the world, only China and India are expected to enjoy growth in 2009.
Brazil's government still thinks it can just make positive growth for the year too, although outside forecasters don't agree with it. In mid-June, leaders of the BRICs even held their first summit meeting. But Russia, a resource-rich land with an otherwise weak economy and a declining population, is in a different situation from its BRIC brethren. It's having a terrible year, with the World Bank predicting that its GDP will contract 7.9%, far worse than that of any other top-15 economy.
Before the financial panic of last fall, many business and government leaders in the BRIC countries spoke confidently of "decoupling" from their economic reliance on the U.S. Such talk faded as a subsequent collapse in global trade left no nation untouched. Yet with their big populations and growing middle classes, the BRICs now seem to have suffered only a glancing blow. The word redecoupling is beginning to appear in the media. Nandan Nilekani, who is about to leave the chairmanship of Indian tech company Infosys for a government post, speaks of "tactical coupling" and "strategic decoupling." That is, nobody could escape the short-term effects of a global crisis, but the basic BRIC growth story still holds.
If the BRICs can keep growing even as the U.S. and Europe flounder, it would spell an end to America's long reign as the driving force in the global economy. Goldman's O'Neill has said it's "conceivable" that China's economy will be bigger than that of the U.S. in less than 20 years and that the BRIC countries as a group will carry as much economic weight as the G-7 group of Western powers plus Japan. This sounds like bad news for the U.S. — and it will certainly bring all sorts of new complications to the global political scene. From a purely economic standpoint, though, the rise of the BICs is great in that it offers the only remotely attractive path out of our current conundrum.
Discussions of the U.S. losing its spot as global leader often get mired in predictions of doom and comparisons to the Roman Empire. When Rome fell, technological advances were lost for centuries, and Europe descended into the Dark Ages. The rise and fall of economic powers since the dawn of modern capitalism in the 17th century has been a different story. There have been shifts in relative power, and some have led to violent conflict, but living standards have continued to improve over time, even in lands that lost the crown of most powerful — Britain being the most recent example.
And so while U.S. economic dominance appears to be giving way to something more mirky, this doesn't imply absolute decline. The U.S. retains a lot of strong points — great universities, millions of ambitious immigrants, a culture that celebrates risk-taking — that are hard for any other nation to match. Just because the U.S. is no longer all-important doesn't mean it will no longer be competitive.
In fact, the U.S. might turn out to be more competitive. American dominance has in recent years been a mixed blessing. Many countries got addicted to selling to American consumers and poured capital into the U.S. to keep the buying going. These inflows kept the dollar strong, making life tough for U.S. exporters; they also saddled Americans with the unsustainable debt loads that led to the financial crisis. Now no one abroad is willing to lend to deadbeat American households, and the U.S. government has temporarily taken over as the world's chief borrower and spender. But as we've just learned from the example of the American consumer, one can't borrow and spend forever.
Sometime in the near future, then, the U.S. will have to start living within its means — or at least a lot closer to them than it currently does. To keep this new American frugality from battering the global economy even more than it's been battered, somebody has to pick up the resulting slack in demand. Europe and Japan have been hit harder by the downturn than the U.S. has, and they have aging, slow-growing populations unlikely to ignite consumer booms. That leaves the BRICs as pretty much the only remaining candidates. These economies are still too small to take up all the slack: together their GDP amounts to less than half that of the U.S. But they are expanding rapidly. Yes, their ascent spells relative economic decline for the U.S. The faster it happens, though, the sooner a durable global economic recovery will get under way.
There's no doubt BRIC economies are the key to future economic growth.
BRIC business
Of the 15 largest economies in the world, only China and India are expected to enjoy growth in 2009.
Brazil's government still thinks it can just make positive growth for the year too, although outside forecasters don't agree with it. In mid-June, leaders of the BRICs even held their first summit meeting. But Russia, a resource-rich land with an otherwise weak economy and a declining population, is in a different situation from its BRIC brethren. It's having a terrible year, with the World Bank predicting that its GDP will contract 7.9%, far worse than that of any other top-15 economy.
Before the financial panic of last fall, many business and government leaders in the BRIC countries spoke confidently of "decoupling" from their economic reliance on the U.S. Such talk faded as a subsequent collapse in global trade left no nation untouched. Yet with their big populations and growing middle classes, the BRICs now seem to have suffered only a glancing blow. The word redecoupling is beginning to appear in the media. Nandan Nilekani, who is about to leave the chairmanship of Indian tech company Infosys for a government post, speaks of "tactical coupling" and "strategic decoupling." That is, nobody could escape the short-term effects of a global crisis, but the basic BRIC growth story still holds.
If the BRICs can keep growing even as the U.S. and Europe flounder, it would spell an end to America's long reign as the driving force in the global economy. Goldman's O'Neill has said it's "conceivable" that China's economy will be bigger than that of the U.S. in less than 20 years and that the BRIC countries as a group will carry as much economic weight as the G-7 group of Western powers plus Japan. This sounds like bad news for the U.S. — and it will certainly bring all sorts of new complications to the global political scene. From a purely economic standpoint, though, the rise of the BICs is great in that it offers the only remotely attractive path out of our current conundrum.
Discussions of the U.S. losing its spot as global leader often get mired in predictions of doom and comparisons to the Roman Empire. When Rome fell, technological advances were lost for centuries, and Europe descended into the Dark Ages. The rise and fall of economic powers since the dawn of modern capitalism in the 17th century has been a different story. There have been shifts in relative power, and some have led to violent conflict, but living standards have continued to improve over time, even in lands that lost the crown of most powerful — Britain being the most recent example.
And so while U.S. economic dominance appears to be giving way to something more mirky, this doesn't imply absolute decline. The U.S. retains a lot of strong points — great universities, millions of ambitious immigrants, a culture that celebrates risk-taking — that are hard for any other nation to match. Just because the U.S. is no longer all-important doesn't mean it will no longer be competitive.
In fact, the U.S. might turn out to be more competitive. American dominance has in recent years been a mixed blessing. Many countries got addicted to selling to American consumers and poured capital into the U.S. to keep the buying going. These inflows kept the dollar strong, making life tough for U.S. exporters; they also saddled Americans with the unsustainable debt loads that led to the financial crisis. Now no one abroad is willing to lend to deadbeat American households, and the U.S. government has temporarily taken over as the world's chief borrower and spender. But as we've just learned from the example of the American consumer, one can't borrow and spend forever.
Sometime in the near future, then, the U.S. will have to start living within its means — or at least a lot closer to them than it currently does. To keep this new American frugality from battering the global economy even more than it's been battered, somebody has to pick up the resulting slack in demand. Europe and Japan have been hit harder by the downturn than the U.S. has, and they have aging, slow-growing populations unlikely to ignite consumer booms. That leaves the BRICs as pretty much the only remaining candidates. These economies are still too small to take up all the slack: together their GDP amounts to less than half that of the U.S. But they are expanding rapidly. Yes, their ascent spells relative economic decline for the U.S. The faster it happens, though, the sooner a durable global economic recovery will get under way.
There's no doubt BRIC economies are the key to future economic growth.
BRIC business
Wednesday, June 17, 2009
BRICs Moving Away from US Dollar Dependence
BRIC Business
The BRIC countries are looking for ways to protect themselves from the crisis presented by the weakening foundation of the US dollar, and one of those strategies may be to buy one another's bonds.
Brazil, Russia, India and China are considering buying each other’s bonds and trading currencies to lessen dependence on the U.S. dollar, Russian President Dmitry Medvedev’s lead economic adviser said.
The leaders of the BRIC countries will discuss measures to promote regional currencies when they meet later today, Arkady Dvorkovich told reporters in the Ural Mountains city of Yekaterinburg before the first BRIC summit.
“There will be talk about increasing the share of mutual trade in national currencies, possibly placing part of reserves in the financial instruments of partner countries,” Dvorkovich said.
Medvedev is hosting back-to-back summits of developing economies in Yekaterinburg as he seeks to lessen the world economy’s dependence on the U.S. dollar. Medvedev will hold talks later today with Chinese President Hu Jintao, Indian Prime Minister Manmohan Singh and Brazilian President Luiz Inacio Lula da Silva.
Medvedev and Hu earlier today attended a summit of the Shanghai Cooperation Organization, which also includes the four former Soviet republics of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.
The Russian leader reiterated his intention to push for the creation of a “supranational currency” to challenge the U.S. dollar and encouraged China and the other Shanghai group members to use each other’s currencies for trade.
Currency System
“There can be no successful global currency system if the financial instruments that are used are denominated in only one currency,” Medvedev said. “Today this is the case and the currency is the dollar.”
The meetings “show a very strong desire of developing countries to play a bigger role in world finance, especially given the growing insecurity related to the current crisis,” said Masha Lipman, a political analyst at the Carnegie Center in Moscow, in an interview with Bloomberg Television today.
Russian Finance Minister Alexei Kudrin said on June 13 that the dollar’s “fundamental indicators” are “fine” and that he was confident in the currency’s strength. A week earlier, Medvedev said the dollar isn’t in “a spectacular position” and questioned its future as a global reserve currency.
Dvorkovich said the positions of Medvedev and Kudrin aren’t contradictory and that the Russian government is united on its dollar policy.
“In the long term, it is beneficial for all and all agree that the world needs a few strong currencies,” Dvorkovich said. “It cannot happen quickly.”
BRIC Business
The BRIC countries are looking for ways to protect themselves from the crisis presented by the weakening foundation of the US dollar, and one of those strategies may be to buy one another's bonds.
Brazil, Russia, India and China are considering buying each other’s bonds and trading currencies to lessen dependence on the U.S. dollar, Russian President Dmitry Medvedev’s lead economic adviser said.
The leaders of the BRIC countries will discuss measures to promote regional currencies when they meet later today, Arkady Dvorkovich told reporters in the Ural Mountains city of Yekaterinburg before the first BRIC summit.
“There will be talk about increasing the share of mutual trade in national currencies, possibly placing part of reserves in the financial instruments of partner countries,” Dvorkovich said.
Medvedev is hosting back-to-back summits of developing economies in Yekaterinburg as he seeks to lessen the world economy’s dependence on the U.S. dollar. Medvedev will hold talks later today with Chinese President Hu Jintao, Indian Prime Minister Manmohan Singh and Brazilian President Luiz Inacio Lula da Silva.
Medvedev and Hu earlier today attended a summit of the Shanghai Cooperation Organization, which also includes the four former Soviet republics of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.
The Russian leader reiterated his intention to push for the creation of a “supranational currency” to challenge the U.S. dollar and encouraged China and the other Shanghai group members to use each other’s currencies for trade.
Currency System
“There can be no successful global currency system if the financial instruments that are used are denominated in only one currency,” Medvedev said. “Today this is the case and the currency is the dollar.”
The meetings “show a very strong desire of developing countries to play a bigger role in world finance, especially given the growing insecurity related to the current crisis,” said Masha Lipman, a political analyst at the Carnegie Center in Moscow, in an interview with Bloomberg Television today.
Russian Finance Minister Alexei Kudrin said on June 13 that the dollar’s “fundamental indicators” are “fine” and that he was confident in the currency’s strength. A week earlier, Medvedev said the dollar isn’t in “a spectacular position” and questioned its future as a global reserve currency.
Dvorkovich said the positions of Medvedev and Kudrin aren’t contradictory and that the Russian government is united on its dollar policy.
“In the long term, it is beneficial for all and all agree that the world needs a few strong currencies,” Dvorkovich said. “It cannot happen quickly.”
BRIC Business
Monday, June 15, 2009
Prime Minister Manmohan Singh BRIC Summit
Indian Prime Minister Manmohan Singh leaves for Yekaterinburg for first BRIC Summit
When Prime Minister Manmohan Singh leaves for Yekaterinburg, in Russia, for his first visit abroad in his second term tomorrow afternoon, he will take two significant steps. He will attend the first-ever summit meeting of the BRIC countries — the phrase that caught on after Goldman Sachs portrayed a rosy future for the four developing economies of Brazil, Russia, India and China — as well as the summit of the Shanghai Cooperation Organisation, or SCO.
After joining SCO, the regional security bloc, as an observer in 2005, India chose to participate in its meetings through the external affairs minister, the petroleum minister and the minister of state in the Prime Minister’s Office. Singh once explained that he would not take part in SCO summits because he was unwilling to sip a cup of coffee outside while others deliberated behind closed doors. But he seems to have changed his mind after Russia pushed through a change in the organisation’s rules, allowing fuller participation for observers. It is the first time that observers will participate in full-scale discussions, including restricted meetings.
“It is a measure of how important we think SCO is that the Prime Minister is going himself, also because we think it is particularly important that regional cooperation in Asia should be encouraged at a time when the world economy is under considerable stress and when there are major issues which need to be discussed at the summit level,” Foreign Secretary Shivshankar Menon said on Friday.
The two meetings in the Ural Mountains city on Tuesday are being keenly watched for, other than signs of policy shifts, how the BRIC nations may treat the US dollar in the future.
According to reports, Russian President Dmitry Medvedev may reprise Russia’s call for a new global reserve currency to augment the dollar. Voices have emanated from BRIC leaders in the recent past that the soaring US budget deficit could spur inflation and weaken the dollar.
Russia, China and Brazil recently announced their intention to invest in International Monetary Fund bonds to diversify their dollar-heavy currency reserves. IMF bonds are denominated in Special Drawing Rights, or SDRs, an artificial currency used by IMF. As Menon pointed out, the BRIC nations account for 25.9 per cent of the total land area of the world, 40 per cent of the global population, and about 40 per cent of the world’s GDP as well. China is Washington’s biggest foreign creditor, holding an estimated $1 trillion in US government debt.
However, it should come as no surprise if the BRIC meeting does not result in specific measures because the four are only united by the fact that they are among the fastest growing economies and by their desire to play a greater role on the world stage.
BRIC Business
When Prime Minister Manmohan Singh leaves for Yekaterinburg, in Russia, for his first visit abroad in his second term tomorrow afternoon, he will take two significant steps. He will attend the first-ever summit meeting of the BRIC countries — the phrase that caught on after Goldman Sachs portrayed a rosy future for the four developing economies of Brazil, Russia, India and China — as well as the summit of the Shanghai Cooperation Organisation, or SCO.
After joining SCO, the regional security bloc, as an observer in 2005, India chose to participate in its meetings through the external affairs minister, the petroleum minister and the minister of state in the Prime Minister’s Office. Singh once explained that he would not take part in SCO summits because he was unwilling to sip a cup of coffee outside while others deliberated behind closed doors. But he seems to have changed his mind after Russia pushed through a change in the organisation’s rules, allowing fuller participation for observers. It is the first time that observers will participate in full-scale discussions, including restricted meetings.
“It is a measure of how important we think SCO is that the Prime Minister is going himself, also because we think it is particularly important that regional cooperation in Asia should be encouraged at a time when the world economy is under considerable stress and when there are major issues which need to be discussed at the summit level,” Foreign Secretary Shivshankar Menon said on Friday.
The two meetings in the Ural Mountains city on Tuesday are being keenly watched for, other than signs of policy shifts, how the BRIC nations may treat the US dollar in the future.
According to reports, Russian President Dmitry Medvedev may reprise Russia’s call for a new global reserve currency to augment the dollar. Voices have emanated from BRIC leaders in the recent past that the soaring US budget deficit could spur inflation and weaken the dollar.
Russia, China and Brazil recently announced their intention to invest in International Monetary Fund bonds to diversify their dollar-heavy currency reserves. IMF bonds are denominated in Special Drawing Rights, or SDRs, an artificial currency used by IMF. As Menon pointed out, the BRIC nations account for 25.9 per cent of the total land area of the world, 40 per cent of the global population, and about 40 per cent of the world’s GDP as well. China is Washington’s biggest foreign creditor, holding an estimated $1 trillion in US government debt.
However, it should come as no surprise if the BRIC meeting does not result in specific measures because the four are only united by the fact that they are among the fastest growing economies and by their desire to play a greater role on the world stage.
BRIC Business
Monday, June 8, 2009
OECD Projects More Slowing of Indian Economy
BRIC Business India
The Organisation for Economic Co-operation and Development (OECD) predicted further slowing down of the Indian economy, even while indicating that China has hit the bottom and is likely to show improvement in the next six months.
With regard to other BRIC nations, the Composite Leading Indicators (CLI) prepared by the OECD suggests that economies of Brazil and Russia would continue to perform on the down side.
The CLI designed to provide early signals of turning points in business cycles, rose by 0.4 per cent for India in April 2009.
According to the OECD -- a grouping of rich nations -- business cycles refer to fluctuations of economic activity around its long-term potential level.
"The CLI for China increased 0.9 point in April 2009 but was 8.3 points lower than a year ago. The CLI for India increased by 0.4 point in April 2009 but was 7.9 points lower than in April 2008," OECD said in a statement today.
Along with India, the OECD has forecast "slowdown" of the economy for the US, Japan and Germany, among others.
Having recorded a growth rate of 9 per cent for consecutive three years ending 2007-08, the Indian economy slipped to 6.7 per cent during 2008-09, mainly on account of the results of the global financial meltdown.
According to the Reserve Bank of India's recent projections, the growth rate could slip to 6 per cent in the current fiscal year.
Even President Pratibha Patil in her address to the joint session of Parliament last week said, "The current financial year is expected to see a slowing down of growth on account of the global recession."
The grouping has projected "strong slowdown" for the Russian and Brazilian economies.
Among the BRIC nations, Russia and Brazil saw the CLI decline in April. While the indicators for Russia dropped by 0.3 point, that of Brazil decreased by 0.7 point.
Meanwhile, the OECD has noted that some major economies are witnessing an "easing pace of deterioration".
"While it is still too early to assess whether it is a temporary or a more durable turning point, OECD composite leading indicators (CLIs) for April 2009 point to a reduced pace of deterioration in most of the OECD economies with stronger signals of a possible trough in Canada, France, Italy and the United Kingdom," the statement noted.
For the G-7 nations -- Canada, France, Germany, Italy, Japan, the United Kingdom and the US -- the grouping has forecast a "slowdown".
BRIC Business India
The Organisation for Economic Co-operation and Development (OECD) predicted further slowing down of the Indian economy, even while indicating that China has hit the bottom and is likely to show improvement in the next six months.
With regard to other BRIC nations, the Composite Leading Indicators (CLI) prepared by the OECD suggests that economies of Brazil and Russia would continue to perform on the down side.
The CLI designed to provide early signals of turning points in business cycles, rose by 0.4 per cent for India in April 2009.
According to the OECD -- a grouping of rich nations -- business cycles refer to fluctuations of economic activity around its long-term potential level.
"The CLI for China increased 0.9 point in April 2009 but was 8.3 points lower than a year ago. The CLI for India increased by 0.4 point in April 2009 but was 7.9 points lower than in April 2008," OECD said in a statement today.
Along with India, the OECD has forecast "slowdown" of the economy for the US, Japan and Germany, among others.
Having recorded a growth rate of 9 per cent for consecutive three years ending 2007-08, the Indian economy slipped to 6.7 per cent during 2008-09, mainly on account of the results of the global financial meltdown.
According to the Reserve Bank of India's recent projections, the growth rate could slip to 6 per cent in the current fiscal year.
Even President Pratibha Patil in her address to the joint session of Parliament last week said, "The current financial year is expected to see a slowing down of growth on account of the global recession."
The grouping has projected "strong slowdown" for the Russian and Brazilian economies.
Among the BRIC nations, Russia and Brazil saw the CLI decline in April. While the indicators for Russia dropped by 0.3 point, that of Brazil decreased by 0.7 point.
Meanwhile, the OECD has noted that some major economies are witnessing an "easing pace of deterioration".
"While it is still too early to assess whether it is a temporary or a more durable turning point, OECD composite leading indicators (CLIs) for April 2009 point to a reduced pace of deterioration in most of the OECD economies with stronger signals of a possible trough in Canada, France, Italy and the United Kingdom," the statement noted.
For the G-7 nations -- Canada, France, Germany, Italy, Japan, the United Kingdom and the US -- the grouping has forecast a "slowdown".
BRIC Business India
BRICs Buy More US Dollars While Looking for Currency Alternatives
BRIC Business News
The unique economic circumstances have led the BRICs to have to buy up the US dollar which they're becoming fearful of holding, while at the same time looking for currency alternatives to being so exposed by holding the greenback.
This is because they're shoring up their own domestic markets so they can continue exporting goods to the US, which was the main reason for the strong market before the economic crisis.
Brazil, Russia, India and China increased foreign reserves by over than $60 billion in May to limit currency gains as the first worldwide recession since World War II restricted exports, data compiled by central banks and strategists show. Brazil acquired the most dollars in a year, India’s reserves increased the most since January 2008 and Russia added the most foreign exchange since July.
While Russian, Chinese and Brazilian leaders suggest substituting the dollar, the central bank purchases show just how dependant they remain on the world’s reserve currency. Russia is suggesting the BRICs consider developing a new unit of exchange when they get together in Yekaterinburg on June 16. China and Brazil said in May they may look at ways of dropping the dollar for trade between the two countries.
“Foreign central banks do not want to see their currencies relentlessly strengthen,” said Daniel Tenengauzer, head of foreign-exchange and emerging-market debt strategy at Banc of America-Merrill Lynch in New York. “Such a move would dampen an already-weak outlook outside the U.S. and potentially risk even more capital-markets chaos if the dollar appeared to be heading toward a disorderly decline.”
Brazil’s real declined 0.1 percent to 1.9633 per dollar at 5:01 p.m. in New York. The ruble fell 1.7 percent to 31.4016 against the U.S. currency, while the Indian rupee dropped 1 percent to 47.57. The Chinese yuan’s 12-month forward contract dropped 0.4 percent to 6.7315 per dollar.
Real’s Rally
International reserve assets excluding gold held by the BRICs, an acronym coined by Goldman Sachs Group Inc. Chief Economist Jim O’Neill in 2001 for the biggest emerging markets, total $2.8 trillion, a 7.8 percent increase from a year ago and 42 percent of the world’s total, data compiled by Bloomberg show.
The real, ruble, and rupee strengthened and the Dollar Index posted its biggest decline in 24 years last month as signs the global recession may be easing spurred investors to seek higher-yielding alternatives to the U.S. currency. A net $26.1 billion has flowed into emerging-market equity funds this year, EPFR Global, which tracks $11 trillion worldwide, said June 4.
The real rallied 11.2 percent last month, the ruble gained 6.9 percent and the rupee 6.4 percent. The yuan appreciated 21 percent between July 2005, when the government allowed it to trade, and July 2008. China has prevented the currency from strengthening since then as the economy slowed.
Currency Alternatives
The Dollar Index, which tracks the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, lost 6.4 percent last month, the biggest decline since March 1985. It rose 0.3 percent today.
Russian President Dmitry Medvedev proposed on June 5 that nations use a mix of regional reserve currencies to reduce reliance on the dollar. The subject may be on the agenda when he meets his counterparts in the Ural Mountains city of Yekaterinburg, the Kremlin said this month.
China’s central bank Governor Zhou Xiaochuan suggested using the International Monetary Fund unit of account, known as special drawing rights, as an alternative in March. His Indian counterpart Duvvuri Subbarao hasn’t commented on that plan. IMF First Deputy Managing Director John Lipsky said on June 6 it’s possible to take such a “revolutionary” step over time.
Last month, China, the biggest importer of soybeans and iron-ore, and Brazil, whose main exports include soy, metals and petroleum, began studying a proposal to move away from the dollar and use yuan and reais instead.
Dollar ‘Discontent’
“What we are seeing is a public expression of discontent over the dollar, yet nobody knows what needs to be done specifically,” said Elina Ribakova, the chief economist in Moscow for Citigroup Inc.
Brazil, the only country to break down its dollar purchases, acquired $2.8 billion of the greenback in May, Russia bought at least $17 billion of foreign currencies, while India’s reserves rose by $10.6 billion, central bank data show. China may have purchased $30 billion in foreign exchange last month, Hong Kong-based research company SJS Markets Ltd. estimates.
At the end of 2008 the dollar accounted for 64 percent of central bank reserves, up from 62.8 percent in June 2008, according to the IMF in Washington. The currency has underpinned exchange rates since the 1971 collapse of the Bretton Woods system, which linked their value to gold.
Rising Holdings
Federal Reserve holdings of Treasuries on behalf of central banks and institutions rose by $68.8 billion, or 3.3 percent, in May, the third most on record, Bloomberg data show. About 51 percent of the $6.36 trillion in marketable Treasuries are held outside America, up from 35 percent in 2000. China is the biggest foreign owner of Treasuries, increasing its holdings to $768 billion as of March from $60 billion in 2000.
A steeper dollar decline would hurt BRIC exports, devalue their reserves and worsen the global credit crisis, said Mitul Kotecha, head of global foreign-exchange strategy in Hong Kong at Calyon, the investment banking arm of Credit Agricole SA.
“It would be shooting yourself in the foot to sell U.S. assets and move away from dollars too quickly,” said Kotecha. “As much as we are seeing in terms of rhetoric, the central banks have so much exposure they will be very careful.”
Intervention, where central banks buy or sell currencies to influence exchange rates, may help bolster the dollar, he said.
Currency Forecasts
The median estimate of analysts surveyed by Bloomberg is for the real to fall 7 percent to 2.1 per dollar by year-end, while the rupee will drop 0.6 percent to 48. The yen is forecast to weaken 4.4 percent.
“The dollar will stabilize against its major trading partners around the turn of the quarter,” said Michael Shaoul, chief executive officer at New York-based institutional brokerage Oscar Gruss & Son Inc., who called the emerging-market rally in February. “It got stronger than was warranted during the crisis and weakened rapidly during the recovery.”
Investors abandoned emerging markets after the September bankruptcy of Lehman Brothers Holdings Inc. eliminated demand for all by the safest, most easily traded assets, such as Treasuries. The MSCI EM Index tumbled 54.5 percent last year.
A shortage of the U.S. currency forced central banks to pump reserves into their economies. The Dollar Index rose 18 percent between June 30 and March 31.
Reserves Reversal
Asian central banks, excluding China, ran down foreign- exchange reserves by more than $300 billion in the 12 months ended April 30, according to London-based HSBC Holdings Plc. Russia’s slid by $213 billion in the eight months ended March 31, central bank data show. Brazil’s reserves dropped $5.7 billion in the six months ended Feb. 27.
Emerging-market central banks are buying dollars as stronger currencies threaten exports while the global economy contracts.
The IMF estimates the world’s gross domestic product will shrink 1.3 percent this year. Trade worldwide will plunge 9 percent, the most since World War II, the World Trade Organization said in March.
Brazil’s $1.3 trillion economy, Latin America’s largest, may drop 0.73 percent in 2009, the biggest contraction in 19 years, according to the median forecast in a May 29 central bank survey. Russia’s economy will contract at least 6 percent, Medvedev said this month. China’s exports, which account for 60 percent of its GDP, slumped 22.6 percent in April from a year earlier, according to the government.
Dollar Strength
“There might be a risk-appetite reversal which could mean some temporary dollar strength,” said Peter Eerdmans, head of emerging-market bonds in London at Investec Asset Management Ltd., which manages $700 million in developing-nation debt. “We have taken profits on some of our emerging-market positions.”
Brazil’s central bank President Henrique Meirelles said last month foreign currency flows are creating a “very favorable” condition for policy makers to boost reserves.
“Given the breadth and depth of the U.S. economy in relation to the world economy, it is unlikely the dollar will be displaced as the principal reserve currency anytime soon,” said Nikhil Srinivasan, who overseas $20 billion of assets as chief investment officer for Asia and the Middle East at Munich-based Allianz SE, Europe’s biggest insurer.
BRIC Business News
The unique economic circumstances have led the BRICs to have to buy up the US dollar which they're becoming fearful of holding, while at the same time looking for currency alternatives to being so exposed by holding the greenback.
This is because they're shoring up their own domestic markets so they can continue exporting goods to the US, which was the main reason for the strong market before the economic crisis.
Brazil, Russia, India and China increased foreign reserves by over than $60 billion in May to limit currency gains as the first worldwide recession since World War II restricted exports, data compiled by central banks and strategists show. Brazil acquired the most dollars in a year, India’s reserves increased the most since January 2008 and Russia added the most foreign exchange since July.
While Russian, Chinese and Brazilian leaders suggest substituting the dollar, the central bank purchases show just how dependant they remain on the world’s reserve currency. Russia is suggesting the BRICs consider developing a new unit of exchange when they get together in Yekaterinburg on June 16. China and Brazil said in May they may look at ways of dropping the dollar for trade between the two countries.
“Foreign central banks do not want to see their currencies relentlessly strengthen,” said Daniel Tenengauzer, head of foreign-exchange and emerging-market debt strategy at Banc of America-Merrill Lynch in New York. “Such a move would dampen an already-weak outlook outside the U.S. and potentially risk even more capital-markets chaos if the dollar appeared to be heading toward a disorderly decline.”
Brazil’s real declined 0.1 percent to 1.9633 per dollar at 5:01 p.m. in New York. The ruble fell 1.7 percent to 31.4016 against the U.S. currency, while the Indian rupee dropped 1 percent to 47.57. The Chinese yuan’s 12-month forward contract dropped 0.4 percent to 6.7315 per dollar.
Real’s Rally
International reserve assets excluding gold held by the BRICs, an acronym coined by Goldman Sachs Group Inc. Chief Economist Jim O’Neill in 2001 for the biggest emerging markets, total $2.8 trillion, a 7.8 percent increase from a year ago and 42 percent of the world’s total, data compiled by Bloomberg show.
The real, ruble, and rupee strengthened and the Dollar Index posted its biggest decline in 24 years last month as signs the global recession may be easing spurred investors to seek higher-yielding alternatives to the U.S. currency. A net $26.1 billion has flowed into emerging-market equity funds this year, EPFR Global, which tracks $11 trillion worldwide, said June 4.
The real rallied 11.2 percent last month, the ruble gained 6.9 percent and the rupee 6.4 percent. The yuan appreciated 21 percent between July 2005, when the government allowed it to trade, and July 2008. China has prevented the currency from strengthening since then as the economy slowed.
Currency Alternatives
The Dollar Index, which tracks the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, lost 6.4 percent last month, the biggest decline since March 1985. It rose 0.3 percent today.
Russian President Dmitry Medvedev proposed on June 5 that nations use a mix of regional reserve currencies to reduce reliance on the dollar. The subject may be on the agenda when he meets his counterparts in the Ural Mountains city of Yekaterinburg, the Kremlin said this month.
China’s central bank Governor Zhou Xiaochuan suggested using the International Monetary Fund unit of account, known as special drawing rights, as an alternative in March. His Indian counterpart Duvvuri Subbarao hasn’t commented on that plan. IMF First Deputy Managing Director John Lipsky said on June 6 it’s possible to take such a “revolutionary” step over time.
Last month, China, the biggest importer of soybeans and iron-ore, and Brazil, whose main exports include soy, metals and petroleum, began studying a proposal to move away from the dollar and use yuan and reais instead.
Dollar ‘Discontent’
“What we are seeing is a public expression of discontent over the dollar, yet nobody knows what needs to be done specifically,” said Elina Ribakova, the chief economist in Moscow for Citigroup Inc.
Brazil, the only country to break down its dollar purchases, acquired $2.8 billion of the greenback in May, Russia bought at least $17 billion of foreign currencies, while India’s reserves rose by $10.6 billion, central bank data show. China may have purchased $30 billion in foreign exchange last month, Hong Kong-based research company SJS Markets Ltd. estimates.
At the end of 2008 the dollar accounted for 64 percent of central bank reserves, up from 62.8 percent in June 2008, according to the IMF in Washington. The currency has underpinned exchange rates since the 1971 collapse of the Bretton Woods system, which linked their value to gold.
Rising Holdings
Federal Reserve holdings of Treasuries on behalf of central banks and institutions rose by $68.8 billion, or 3.3 percent, in May, the third most on record, Bloomberg data show. About 51 percent of the $6.36 trillion in marketable Treasuries are held outside America, up from 35 percent in 2000. China is the biggest foreign owner of Treasuries, increasing its holdings to $768 billion as of March from $60 billion in 2000.
A steeper dollar decline would hurt BRIC exports, devalue their reserves and worsen the global credit crisis, said Mitul Kotecha, head of global foreign-exchange strategy in Hong Kong at Calyon, the investment banking arm of Credit Agricole SA.
“It would be shooting yourself in the foot to sell U.S. assets and move away from dollars too quickly,” said Kotecha. “As much as we are seeing in terms of rhetoric, the central banks have so much exposure they will be very careful.”
Intervention, where central banks buy or sell currencies to influence exchange rates, may help bolster the dollar, he said.
Currency Forecasts
The median estimate of analysts surveyed by Bloomberg is for the real to fall 7 percent to 2.1 per dollar by year-end, while the rupee will drop 0.6 percent to 48. The yen is forecast to weaken 4.4 percent.
“The dollar will stabilize against its major trading partners around the turn of the quarter,” said Michael Shaoul, chief executive officer at New York-based institutional brokerage Oscar Gruss & Son Inc., who called the emerging-market rally in February. “It got stronger than was warranted during the crisis and weakened rapidly during the recovery.”
Investors abandoned emerging markets after the September bankruptcy of Lehman Brothers Holdings Inc. eliminated demand for all by the safest, most easily traded assets, such as Treasuries. The MSCI EM Index tumbled 54.5 percent last year.
A shortage of the U.S. currency forced central banks to pump reserves into their economies. The Dollar Index rose 18 percent between June 30 and March 31.
Reserves Reversal
Asian central banks, excluding China, ran down foreign- exchange reserves by more than $300 billion in the 12 months ended April 30, according to London-based HSBC Holdings Plc. Russia’s slid by $213 billion in the eight months ended March 31, central bank data show. Brazil’s reserves dropped $5.7 billion in the six months ended Feb. 27.
Emerging-market central banks are buying dollars as stronger currencies threaten exports while the global economy contracts.
The IMF estimates the world’s gross domestic product will shrink 1.3 percent this year. Trade worldwide will plunge 9 percent, the most since World War II, the World Trade Organization said in March.
Brazil’s $1.3 trillion economy, Latin America’s largest, may drop 0.73 percent in 2009, the biggest contraction in 19 years, according to the median forecast in a May 29 central bank survey. Russia’s economy will contract at least 6 percent, Medvedev said this month. China’s exports, which account for 60 percent of its GDP, slumped 22.6 percent in April from a year earlier, according to the government.
Dollar Strength
“There might be a risk-appetite reversal which could mean some temporary dollar strength,” said Peter Eerdmans, head of emerging-market bonds in London at Investec Asset Management Ltd., which manages $700 million in developing-nation debt. “We have taken profits on some of our emerging-market positions.”
Brazil’s central bank President Henrique Meirelles said last month foreign currency flows are creating a “very favorable” condition for policy makers to boost reserves.
“Given the breadth and depth of the U.S. economy in relation to the world economy, it is unlikely the dollar will be displaced as the principal reserve currency anytime soon,” said Nikhil Srinivasan, who overseas $20 billion of assets as chief investment officer for Asia and the Middle East at Munich-based Allianz SE, Europe’s biggest insurer.
BRIC Business News
Subscribe to:
Posts (Atom)
![[Most Recent Exchange Rate from www.kitco.com]](http://www.weblinks247.com/exrate/24hr-inr-small.gif)