The BRICs are in a unique position at this time, as the economies of the countries are looking for bottoms whereby to build back up from.
While it's definitely not time to buy as of this writing, as a provable uptrend hasn't been engaged yet, it's important to have your investment money in the sector ready, as it appears there are attempts at a bottom forming, and you want to get in close to when that happens.
It's not good to try to find the absolute bottom, but it is good to watch and wait to see that it has sustainably bounced off their bottom and are on an upward trend.
The BRICs are wildly out of favor at this time, and justifiably so. But there is always lag time from the time an uptrend begins and traders catch on, and that's when you want to invest in the sector. If you get in too early you risk a lot of time, while if you get in too late you're always trying to chase the numbers and you'll have to pay a premium for whatever companies or funds in the sector you're looking to invest in.
The best strategy is to wait until the uptrend is ensured, but before most investors catch on.
There is no doubt about the BRICs' growth in the future, with India probably being the weakest of the bunch because of draconian regulations and laws, but overall, this group of countries are where the majority of future economic growth will be, and those getting in at the right time again will reap significant financial rewards.
Other than specific funds, it's best to look at quality blue chips companies based in China, India, Brazil and Russia, as they still have a lot of room to grow, and are almost ensured of lasting for a long time into the future.
Showing posts with label BRIC. Show all posts
Showing posts with label BRIC. Show all posts
Thursday, July 12, 2012
Thursday, February 24, 2011
BRIC's Battle For African Assets
China is all over Africa--with its massive aid packages, loans, investments, and thousands of Chinese construction workers. But Brazil is set on making its mark, too, and it's hiring locally to get on the good side of Africans who want jobs and whose resentment toward the Chinese is reportedly increasing.
China's presence in Africa is suspect--while often in the name of aid, its rather sweeping investment and interest in the continent's vast natural resources is clear, as Fast Company detailed in an extensive series on China in Africa. Not surprisingly, relationships with locals are strained--Chinese workers are more often than not the ones gaining employment from Chinese contracts in Africa and tensions have exploded in some instances, leading to shootings and other stand-offs. And all of this makes it easier for Brazil to enter, as the country can learn from China's mistakes.
A railway in Liberia, for example, is being renovated in the hopes of boosting the country's economy, which has largely been stagnant due to decades of civil war. The Brazilian engineering firm, Odebrecht, hired locals to get the job done and have found smooth, successful relations as a result. "It worked perfectly," project manager Pedro Paulo Tosca told Reuters. "The majority of the heavy work was activities that we could perform with local manpower instead of bringing sophisticated equipment to the site."
Full Story
China's presence in Africa is suspect--while often in the name of aid, its rather sweeping investment and interest in the continent's vast natural resources is clear, as Fast Company detailed in an extensive series on China in Africa. Not surprisingly, relationships with locals are strained--Chinese workers are more often than not the ones gaining employment from Chinese contracts in Africa and tensions have exploded in some instances, leading to shootings and other stand-offs. And all of this makes it easier for Brazil to enter, as the country can learn from China's mistakes.
A railway in Liberia, for example, is being renovated in the hopes of boosting the country's economy, which has largely been stagnant due to decades of civil war. The Brazilian engineering firm, Odebrecht, hired locals to get the job done and have found smooth, successful relations as a result. "It worked perfectly," project manager Pedro Paulo Tosca told Reuters. "The majority of the heavy work was activities that we could perform with local manpower instead of bringing sophisticated equipment to the site."
Full Story
Tuesday, June 8, 2010
Morgan Stanley (NYSE:MS) CEO Sees Fast Continuing BRIC Growth
Morgan Stanley (NYSE:MS) CEO John Mack said he sees continual growth for BRIC countries in 2010, unsurprisingly, led by China and India.
Concerning the weakest link of the four countries, Russia, Mack said, "Russia still has a very strong balance sheet and low overall leverage, which remain key advantages for the country. However, it continues to lag in investment due to the volatile macro environment and weak property rights."
Even though growth around the world will probably slow down because of China's fight with inflation from their hot urban property market, no growth in the U.S., and the European sovereign debt crisis.
Regardless of what the growth rates end up being, Mack stated that "Our expectation is that the fastest rates of economic growth this year are expected to be in China, India, Brazil and Russia."
Concerning the weakest link of the four countries, Russia, Mack said, "Russia still has a very strong balance sheet and low overall leverage, which remain key advantages for the country. However, it continues to lag in investment due to the volatile macro environment and weak property rights."
Even though growth around the world will probably slow down because of China's fight with inflation from their hot urban property market, no growth in the U.S., and the European sovereign debt crisis.
Regardless of what the growth rates end up being, Mack stated that "Our expectation is that the fastest rates of economic growth this year are expected to be in China, India, Brazil and Russia."
Saturday, April 10, 2010
BRIC Currency Trade Strategy
BRIC Currency Strategy
With confidence in the U.S. dollar waining among a number of countries, Brazil, Russia, India and China, or the BRIC countries are looking for way to increase trade using their own currencies rather than the dollar.
The strategy is to decrease dependence on the U.S. dollar, which is extremely flawed and has a dismal future because of the Federal Reserve and monetary policy of the U.S., which makes it hard to have much confidence in the greenback in the years ahead.
Russia has suggested using a mix of regional currencies as a way to protect against the U.S. dollar and reduce risk in relationship to the volatility of the dollar.
China has experimented with allowing companies located in the Guangdong province to do business using the reminbi with members of the Association of Southeast Asian Nations, Macau and Hong Kong.
With confidence in the U.S. dollar waining among a number of countries, Brazil, Russia, India and China, or the BRIC countries are looking for way to increase trade using their own currencies rather than the dollar.
The strategy is to decrease dependence on the U.S. dollar, which is extremely flawed and has a dismal future because of the Federal Reserve and monetary policy of the U.S., which makes it hard to have much confidence in the greenback in the years ahead.
Russia has suggested using a mix of regional currencies as a way to protect against the U.S. dollar and reduce risk in relationship to the volatility of the dollar.
China has experimented with allowing companies located in the Guangdong province to do business using the reminbi with members of the Association of Southeast Asian Nations, Macau and Hong Kong.
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 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
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
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
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
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
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
Thursday, February 12, 2009
BRIC Countries Lead Global Equity Markets
While most countries around the globe struggle, including large western nations, the BRIC countries of Brazil, Russia, India and China are still enjoying significant, albeit slower growth, as the emerging markets countries still have consumers spending in them, in contrast to the overall domestic global business in other countries.
Consequently, the large emerging markets countries have outperformed most others in the equity markets, even though of the four, India has fallen by a slight 0.3 percent on the Bombay Stock Exchange, although it still ranks them in the top four of the 15 largest markets across the world.
As far as major stock markets, Brazil, Russia and China are the only ones growing above the 8 percent mark so far this year, while India has changed very little. Even though BRIC countries have slowed down in growth, they're still growing at rates far beyond their North American, European and Japanese counterparts.
Leading the equity growth is China, which has grown by 24 percent this year on the Shanghai composite index, while Russia via the Micex has surged 17 percent, and Brazil has performed at an 8.8 percent growth rate on the Bovespa.
This does show that domestically the consumers in the respective BRIC countries haven't stopped spending, as exports from China, Brazil and Russis have dropped significantly, let by the largest drop in China exports in 13 years, as demand for Europe and the United States has dried up. In the case of Brazil, they've struggle on both sides of the equation, as industrially they've fallen off in output the worst since 1992 in the fourth quarter, while commodity exports struggled in 2008, although it has started to rebound some.
Russia has been hit especially hard because of its reliance upon oil and its prices to shore up its economy, as it's one of the chief exports of the country. The Russian ruble has also experienced a downturn, falling by 16 percent against the U.S. dollar so far in 2009. That of course also increases the cost of financing for Russian companies.
For these reasons, even though domestic spending seems to have continued in these emerging markets countries, some think that it is still probably too early to start investing in BRIC markets until valuations have fallen to the point where it makes risk worth it. If the global recession last longer than expected, it could cause BRIC investors a lot of headaches and time as they wait to not only recoup their capital, but make money on it as well. Most are waiting for valuations to drop to the point where most or all the bad news is already priced into the emerging economies.
Even so, investors in BRIC emerging market countries need to position themselves for when the bull market starts up again, as when they do, those in early enough will enjoy great returns for years ahead.
There's no doubt China will lead the way out of the emerging countries equity slump, as there are already signs it's turning around and Chinese consumers are still saving and spending money, to the benefit of the country. That's in contrast to 2008, when the Shanghai index plunged by 65 percent, and was only trading at 13.2 times the reported profits. Just this week though, the Shanghai index had already climbed to 17.6 percent earngings, already up 32 percent from the lows of 2008. China watchers believe they're either at or close to the bottom. China is expected to come out of the economic slowdown far better than the majority, if not the very best.
Because the BRIC countries are growing both economically and population wise faster than developed countries, specifically China and India, we'll see them continue to outperform in growth for years to come.
Other BRIC emerging markets will enjoy growth as well, and are already starting to turn the corner in some areas of their economies.
Much of India's growth also stems from strong domestic spending, as growth for the year ending on March 31 is projected to expand by about 7.1 percent. That's much more than expectatons of only 0.5 percent from the IMF. The central bank of India also cut interest rates from 9 percent in October down to 5.5 percent as of today.
For Brazil's emerging economy, which relies so much on the exportation of commodities and natural resources, they've rebounded from the Bovespa index shedding 41 percent last year, whic dropped price/earnings ratios down to 7 as of October, to 9.6 today. The BRIC economy enjoyed a resurgence of some metals also, helping them to grow. Internal infrastructure spending also helped the economy grow.
For Russia, even though they've suffered from lost oil revenues, the steel companies have been doing well based on the assumption increased infrastructure spending will increase profits in the industry. The Russian ruble also had a nice jump recently, increasing by 2.5 percnet against the euro and the U.S. dollar. That's four days in a row the currency has risen, pushing investors to move out of foreign currencies as the Russian government defends the ruble.
So how can we invest in emerging and BRIc economies? Investing in BRIC markets can be through bonds in the emerging markets, emerging or BRIC funds, BRIC mutual funds, BRIC or emerging market ETFs, or many of the similar investments we already invest in in the countries we reside in.
For investors with a short term mentality, investing BRIC country investment vehicles is probably not a good idea, as there is much volatility at this time, and they must be entered with a long term outlook. BRIC funds and ETFs, along with the other investment instruments will outperform most if not all of their large competitors in general, but over the short term, just like in developed nations, it's risky to enter emerging markets with a short term time frame.
The BRIC countries and markets of Brazil, Russia, India and China will make fortunes for investors in the years ahead, and those that are patient and in it for the long term, along with doing their homework, will be wildly successful and profiable as emerging markets and emerging economies lead the way economically over the next couple decades.
Consequently, the large emerging markets countries have outperformed most others in the equity markets, even though of the four, India has fallen by a slight 0.3 percent on the Bombay Stock Exchange, although it still ranks them in the top four of the 15 largest markets across the world.
As far as major stock markets, Brazil, Russia and China are the only ones growing above the 8 percent mark so far this year, while India has changed very little. Even though BRIC countries have slowed down in growth, they're still growing at rates far beyond their North American, European and Japanese counterparts.
Leading the equity growth is China, which has grown by 24 percent this year on the Shanghai composite index, while Russia via the Micex has surged 17 percent, and Brazil has performed at an 8.8 percent growth rate on the Bovespa.
This does show that domestically the consumers in the respective BRIC countries haven't stopped spending, as exports from China, Brazil and Russis have dropped significantly, let by the largest drop in China exports in 13 years, as demand for Europe and the United States has dried up. In the case of Brazil, they've struggle on both sides of the equation, as industrially they've fallen off in output the worst since 1992 in the fourth quarter, while commodity exports struggled in 2008, although it has started to rebound some.
Russia has been hit especially hard because of its reliance upon oil and its prices to shore up its economy, as it's one of the chief exports of the country. The Russian ruble has also experienced a downturn, falling by 16 percent against the U.S. dollar so far in 2009. That of course also increases the cost of financing for Russian companies.
For these reasons, even though domestic spending seems to have continued in these emerging markets countries, some think that it is still probably too early to start investing in BRIC markets until valuations have fallen to the point where it makes risk worth it. If the global recession last longer than expected, it could cause BRIC investors a lot of headaches and time as they wait to not only recoup their capital, but make money on it as well. Most are waiting for valuations to drop to the point where most or all the bad news is already priced into the emerging economies.
Even so, investors in BRIC emerging market countries need to position themselves for when the bull market starts up again, as when they do, those in early enough will enjoy great returns for years ahead.
There's no doubt China will lead the way out of the emerging countries equity slump, as there are already signs it's turning around and Chinese consumers are still saving and spending money, to the benefit of the country. That's in contrast to 2008, when the Shanghai index plunged by 65 percent, and was only trading at 13.2 times the reported profits. Just this week though, the Shanghai index had already climbed to 17.6 percent earngings, already up 32 percent from the lows of 2008. China watchers believe they're either at or close to the bottom. China is expected to come out of the economic slowdown far better than the majority, if not the very best.
Because the BRIC countries are growing both economically and population wise faster than developed countries, specifically China and India, we'll see them continue to outperform in growth for years to come.
Other BRIC emerging markets will enjoy growth as well, and are already starting to turn the corner in some areas of their economies.
Much of India's growth also stems from strong domestic spending, as growth for the year ending on March 31 is projected to expand by about 7.1 percent. That's much more than expectatons of only 0.5 percent from the IMF. The central bank of India also cut interest rates from 9 percent in October down to 5.5 percent as of today.
For Brazil's emerging economy, which relies so much on the exportation of commodities and natural resources, they've rebounded from the Bovespa index shedding 41 percent last year, whic dropped price/earnings ratios down to 7 as of October, to 9.6 today. The BRIC economy enjoyed a resurgence of some metals also, helping them to grow. Internal infrastructure spending also helped the economy grow.
For Russia, even though they've suffered from lost oil revenues, the steel companies have been doing well based on the assumption increased infrastructure spending will increase profits in the industry. The Russian ruble also had a nice jump recently, increasing by 2.5 percnet against the euro and the U.S. dollar. That's four days in a row the currency has risen, pushing investors to move out of foreign currencies as the Russian government defends the ruble.
So how can we invest in emerging and BRIc economies? Investing in BRIC markets can be through bonds in the emerging markets, emerging or BRIC funds, BRIC mutual funds, BRIC or emerging market ETFs, or many of the similar investments we already invest in in the countries we reside in.
For investors with a short term mentality, investing BRIC country investment vehicles is probably not a good idea, as there is much volatility at this time, and they must be entered with a long term outlook. BRIC funds and ETFs, along with the other investment instruments will outperform most if not all of their large competitors in general, but over the short term, just like in developed nations, it's risky to enter emerging markets with a short term time frame.
The BRIC countries and markets of Brazil, Russia, India and China will make fortunes for investors in the years ahead, and those that are patient and in it for the long term, along with doing their homework, will be wildly successful and profiable as emerging markets and emerging economies lead the way economically over the next couple decades.
Wednesday, January 14, 2009
BRIC Nations Experience 20 Percent Fall in Syndicated Loans
BRIC nations - Brazil, Russia, India and China - have experienced a 20 percent fall in loans from companies in 2008, according to a report from tracking firm Dealogic.
“BRIC combined syndicated loan volume hit USD 144.2 billion in full year of 2008, down 20 per cent from USD 180.2 billion recorded in 2007," said the report.
The last quarter was especially difficult, accounting for the majority of the down performance. In that quarter syndicated loan volume dropped to $23.1 billion, with only 50 deals being made during that time. That's the worst quarter since the first quarter of 2004, where only $13.2 billion was loaned. Only 38 deals were closed during that period as well.
Even so, other regions performed poorly too, with BRIC countries gaining in syndicated loan share by 1 percent globally. In 2008 they grew share to 5 percent from 2007's 4 percent, and 2006's 3 percent.
* Syndicated loans are simply a group of financial institutions offering financing while sharing the risk together.
“BRIC combined syndicated loan volume hit USD 144.2 billion in full year of 2008, down 20 per cent from USD 180.2 billion recorded in 2007," said the report.
The last quarter was especially difficult, accounting for the majority of the down performance. In that quarter syndicated loan volume dropped to $23.1 billion, with only 50 deals being made during that time. That's the worst quarter since the first quarter of 2004, where only $13.2 billion was loaned. Only 38 deals were closed during that period as well.
Even so, other regions performed poorly too, with BRIC countries gaining in syndicated loan share by 1 percent globally. In 2008 they grew share to 5 percent from 2007's 4 percent, and 2006's 3 percent.
* Syndicated loans are simply a group of financial institutions offering financing while sharing the risk together.
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