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
Wednesday, June 17, 2009
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
Friday, June 5, 2009
BRIC Business News | Proctor & Gamble Looking to BRICs for Growth
BRIC Business
BRIC markets are the future for western retailers and product developers, and that's no different for giant Proctor & Gamble.
Procter & Gamble is seeing flat growth in the developed markets and is counting on Russia and other emerging markets to lead the recovery in consumer demand, its chief operating officer said on Friday.
"What we see is a dampening of demand there (in developed markets), basically flat market growth," COO Robert McDonald told Reuters financial television at Russia's Economic Forum in St Petersburg.
"(Emerging markets) is where the growth is. As we look back to the year 2000, only about 20 percent of our business was in these markets. Now its 30 (percent), more than 30. We're counting on Russia," he said.
He mentioned in particular Brazil, India and China, which together with Russia make up the so-called BRIC economies. "We are counting on Russia, one of our top five countries."
The maker of Gillette razors and Tide laundry detergent, which has seen some of its brands lose market share as recession-hit consumers trade down to cheaper or private-label brands, said last month it planned to accelerate its spending on new plants and new products.
"The demand is slowing. We clearly see that, but that is no reason to pull back on the investments. We are continuing to invest because we know that demand will return," he said.
He's definitely right, and that demand will surge when the global economy turns around, and those in the emerging middle classes in the BRIC countries hunger for quality goods and services.
BRIC Business
BRIC markets are the future for western retailers and product developers, and that's no different for giant Proctor & Gamble.
Procter & Gamble is seeing flat growth in the developed markets and is counting on Russia and other emerging markets to lead the recovery in consumer demand, its chief operating officer said on Friday.
"What we see is a dampening of demand there (in developed markets), basically flat market growth," COO Robert McDonald told Reuters financial television at Russia's Economic Forum in St Petersburg.
"(Emerging markets) is where the growth is. As we look back to the year 2000, only about 20 percent of our business was in these markets. Now its 30 (percent), more than 30. We're counting on Russia," he said.
He mentioned in particular Brazil, India and China, which together with Russia make up the so-called BRIC economies. "We are counting on Russia, one of our top five countries."
The maker of Gillette razors and Tide laundry detergent, which has seen some of its brands lose market share as recession-hit consumers trade down to cheaper or private-label brands, said last month it planned to accelerate its spending on new plants and new products.
"The demand is slowing. We clearly see that, but that is no reason to pull back on the investments. We are continuing to invest because we know that demand will return," he said.
He's definitely right, and that demand will surge when the global economy turns around, and those in the emerging middle classes in the BRIC countries hunger for quality goods and services.
BRIC Business
Thursday, June 4, 2009
BRIC Business | BRIC New World Reserve Currency?
BRIC Business
Will BRICs push for creating new world reserve currency represented by them?
“Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance,” said Ben Bernanke yesterday. The Fed Chairman took a page from our playbook yesterday, warning Congress that “Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,”
From a man who played an integral role in two of the most easy-money, spendthrift administrations in U.S. history… that’s an interesting recommendation.
So what’s an investor to do? Prepare for higher Fed interest rates? Look for Bernanke to shut down the dollar printing press and for Congress to get its fiscal act together?
For the most part, we suspect Bernanke is just talking up his book. He’s got loads of T-bonds to buy, yields to suppress and mortgage rates to manipulate. The more interference he can run, the longer it will take for the world to wake up to this:
Washington is on track to issue more than $5 trillion in new debt over the next 18 months. Total interest payments on government debt are plotted to exceed $800 billion in the next 10 years, up almost fivefold from 2009. That’s if long bond yields stay under 5%, as the Congressional Budget Office forecasts. Every one percentage point higher, says Harvard economist Kenneth Rogoff, will cost the U.S. government an extra $170 billion annually.
“The Fed can only manipulate interest rates so far,” notes our currency trader Bill Jenkins. “Then the market takes over. Our Treasury bonds are becoming a greater and greater risk to people who buy and hold them. Of course, basic market theory holds that to assume greater risk going forward, one must have a higher rate of return. So no matter what the Fed “dictates” by lowering rates, they are on their way up!”
Perhaps Washington’s only saving grace: The whole Western world has bought into America’s economic school of thought.
“We are witnessing the end of the post-World War II economic construct of the world’s financial system,” opines Byron King. “That construct always had a Western bias. But the 2008 crash of the Western business and financial model has changed everything. It has left a barren worldwide financial landscape for large development projects. Most traditional Western financing is simply not available for large projects. And as French author Francois Rabelais (1494-1553) once noted, ‘Nature abhors a vacuum.’
“Thus has the Western financial crisis handed well-capitalized, government-backed Chinese banks and industrial firms an unmatched competitive advantage. With the traditional credit markets dry, Chinese banks have transformed into key lenders for the resource developments that will fuel the next generation of humanity. Indeed, for now, the Chinese are the world’s ONLY lenders for large resource development projects.
“Exhibit 1, Brazil. Brazil is making a national commitment to develop energy resources located far offshore in the South Atlantic. Indeed, no nation has ever advanced such an ambitious plan for long-term comprehensive offshore development. And it’s being bankrolled by China.”
Could the world’s new reserve currency be “BRIC dollars”? Russian President Dmitry Medvedev will propose a new world currency when he meets with Chinese, Brazilian and Indian leaders this month, his spokeswoman said this week.
“We need some kind of universal means of payment, which could create the basis of a future international financial system,” Medvedev told CNBC. “Naturally, because of the crisis in the American economy, attitude to the dollar has also changed.”
BRIC Business
Will BRICs push for creating new world reserve currency represented by them?
“Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance,” said Ben Bernanke yesterday. The Fed Chairman took a page from our playbook yesterday, warning Congress that “Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,”
From a man who played an integral role in two of the most easy-money, spendthrift administrations in U.S. history… that’s an interesting recommendation.
So what’s an investor to do? Prepare for higher Fed interest rates? Look for Bernanke to shut down the dollar printing press and for Congress to get its fiscal act together?
For the most part, we suspect Bernanke is just talking up his book. He’s got loads of T-bonds to buy, yields to suppress and mortgage rates to manipulate. The more interference he can run, the longer it will take for the world to wake up to this:
Washington is on track to issue more than $5 trillion in new debt over the next 18 months. Total interest payments on government debt are plotted to exceed $800 billion in the next 10 years, up almost fivefold from 2009. That’s if long bond yields stay under 5%, as the Congressional Budget Office forecasts. Every one percentage point higher, says Harvard economist Kenneth Rogoff, will cost the U.S. government an extra $170 billion annually.
“The Fed can only manipulate interest rates so far,” notes our currency trader Bill Jenkins. “Then the market takes over. Our Treasury bonds are becoming a greater and greater risk to people who buy and hold them. Of course, basic market theory holds that to assume greater risk going forward, one must have a higher rate of return. So no matter what the Fed “dictates” by lowering rates, they are on their way up!”
Perhaps Washington’s only saving grace: The whole Western world has bought into America’s economic school of thought.
“We are witnessing the end of the post-World War II economic construct of the world’s financial system,” opines Byron King. “That construct always had a Western bias. But the 2008 crash of the Western business and financial model has changed everything. It has left a barren worldwide financial landscape for large development projects. Most traditional Western financing is simply not available for large projects. And as French author Francois Rabelais (1494-1553) once noted, ‘Nature abhors a vacuum.’
“Thus has the Western financial crisis handed well-capitalized, government-backed Chinese banks and industrial firms an unmatched competitive advantage. With the traditional credit markets dry, Chinese banks have transformed into key lenders for the resource developments that will fuel the next generation of humanity. Indeed, for now, the Chinese are the world’s ONLY lenders for large resource development projects.
“Exhibit 1, Brazil. Brazil is making a national commitment to develop energy resources located far offshore in the South Atlantic. Indeed, no nation has ever advanced such an ambitious plan for long-term comprehensive offshore development. And it’s being bankrolled by China.”
Could the world’s new reserve currency be “BRIC dollars”? Russian President Dmitry Medvedev will propose a new world currency when he meets with Chinese, Brazilian and Indian leaders this month, his spokeswoman said this week.
“We need some kind of universal means of payment, which could create the basis of a future international financial system,” Medvedev told CNBC. “Naturally, because of the crisis in the American economy, attitude to the dollar has also changed.”
BRIC Business
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