Brazil's Economy Continues to Falter: Inflation Soars, Currency Plunges

After the ongoing negative economic news associated with Brazil, it could be thought the worst is over and the country is close to a rebound. That's not the case though, as the vast majority of data concerning the country remains bad, or is getting worse.

The major concern for some time has been the probable loss of its investment grade rating, which when coupled with numerous other weaknesses, such as the plunge in value of the real versus the U.S. dollar (now at a 12-year low) and the increase in costs of public transportation and utilities, creates a scenario for country that will weigh on much of its economy, market and companies with exposure there.

The lending rate in the country stands at 14.25 percent, the result of efforts to rein in inflation.

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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."

BRICs Growing as Economic Powers

Now that BRICs are looked to as the economic growth engines of the short- and long term future, they're now sharing economic power which extends beyond the G-8. China itself will soon pass Japan as the second-largest economy in the world, behind only the U.S.

While the G-8 accounts for about 66 percent of the overall global GDP, when taking into account the G-20, they together makeup close to 85 percent of all global economic production.

What has changed economically from the past, is now the countries in the G-20 are more the drivers of economic recovery, versus the G-8, which used to be the main economic force in the world, and the engine of recovery.

Making up the G-20 members are Argentina, India, Australia, Canada, China, France, Germany, Indonesia, Italy, Japan, South Korea, Mexico, the U.K., Russia, Saudi Arabia, South Africa, Brazil, Turkey, the U.S. and the European Union.

BRIC Middle Classes Driving Economy

BRIC Middle Class

No matter how long it takes to emerge from the economic recession the world is now in, there's no doubt after things get better, that over the next couple of decades BRIC middle classes will drive the global economics and prosperity for the next several decades.

The American consumer has been the chief mover of the global economy for a long time, but that is about to change, and the recession and the emerging and growing middle classes in Brazil, Russia, India and China will lead the way going forward; especially China and India.

Once things turn around we'll see these middle class people desire and buy up many products and services, and there'll be unprecedented growth for some time; although there will always be temporary slowdowns in general, but the overall curve should go up for the most part in these nations.

According to McKinsey & Co., the urban Chinese middel class will spend close to $2.3 trillion a year by 2025, while India's middle class should grow from 5 percent today to over 40 percent of the nation over the next 20 years. Brazil and Russia will also contribute significantly to this growth, marking an unprecedented opportunity at prosperity and growth.

The majority of emerging markets avoided the worst of the economic crisis, which originated in the mortgage-backed bonds that the U.S. sold to the developed world. Their economies have declined far less dramatically, and contrary to the U.S. or Europe, many are projected to grow this year. So it’s no surprise that consumers in emerging-market countries want more of the products those in the West take for granted.

Those companies and individuals investing in the BRICs should enjoy success when they focus on sectors like banking, finance, real estate, retail, consumer goods, commodities and entertainment.

This isn't a short-term strategy to employ when engaging the BRICs, but rather those with an long-term outlook should do very well by investing in BRIC nations and economies.

BRIC Middle Class

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

BRICs Drive Export Demand

BRIC Driving Export Demand

With the U.S. consumers expected to hold back on spending for some time, the world continually is looking for the rebound from the BRIC countries in order to generate increasing demand for exports, which will help their domestic economies.

According to a recently released Goldman Sachs report, they assert the BRICs will account for around 50 percent of export demand as their domestic consumption grows; presumably from their emerging middle classes.

The report reiterated what we already know here, that China would perform particularly strong, more than likely accounting for 30% of the world’s consumption growth next year, which is more than the combined growth of the G3 — United States, Japan and Germany — as they slowly move out of recession.

Goldman Sachs, which dubbed the term BRIC in 2001, said the emergence of the BRIC consumer is an important development that will create demand and hence support the export markets of developed economies, and I would add that this will be going on for some time to come.

The report added that consumption in the BRIC economies would be supported by a shift in spending power from the richest countries towards a growing middle-income bloc in the emerging markets. Consumption would likely receive a further increase when the fast economic growth in China and India finally reaches their rural populations.

As these domestic economies emerge, the type of products they consume is also likely to slowly move away from low-value-added products, like agricultural goods, to those at the higher end, such as cars, office and telecom equipment.

The Goldman economists estimate that Chinese retail sales, a key indicator of consumption, rose 17.6% in the year ended June, with food and beverages products posting the biggest gains, although it remains to be seen whether this is a real rebound once their stimulus money runs it course and potential inflation arises. Retail sales in Brazil, while lower than in 2008, remained well supported and would likely increase in the third quarter as demand for commodities increase.

India does not measure retail sales, but individual components, such as vehicle sales are used to measure the consumer for consumption demand. Goldman said auto sales had increased in a big way, and were now selling quicker than before the crisis.

Russia, after years of strong growth, was the only BRIC country where retail sales growth had suffered, and is slowly losing the luster connected to being included with BRIC at this time. Sales in the year to June fell 6.72% on the back of a plunge in non-food products.

While most agree the BRIC countries will have an increasingly important role to play in the worldwide economy, not all are sure they can drive demand, but I think that's ludicrous based on China alone.

BRIC Driving Export Demand

Are BRICs Really that Powerful?

BRIC Business News

During the current economic crisis has provided fresh fuel to the debate over the decline of the West and emergence of the East. The so-called BRICs – Brazil, Russia, India, and China – are often looke upon as the inevitable economic winners. A glance behind the numbers, though, suggests proclaiming these countries victors may be a little too early. Some like Russia may not be included at all if major changes aren't made soon.

The numbers aren’t that great. The World Bank’s dark forecasts see global GDP plunging a record 2.9 percent in 2009, along with deteriorating current account balances, increased debt, soaring unemployment, chaotic stock markets and declining business confidence. Yes, there may be a few positives concerning recovery. China’s stimulus efforts – a rapid expansion of fixed investment and credit to the state sector fueled by massive foreign reserves – seem to have had a predictable positive, if probably short-term, effect. Although there is the possibility of a broader, but still mild, recoveries in 2010 and 2011 .

But the path to full recovery is not clear in any way. The global economy is at some kind of tipping or inflection point, a moment of paradigm shift. If the Anglo-American model of finance capital is yet another god that failed, so too the alternatives: Japanese networked capitalism, Euro-dirigisme, or various strains of state capitalism have not been widely accepted.

Before the depth of the coming economic storm was clear, the BRICs were the sweethearts of the investment community. They were first lumped together in an influential Goldman Sachs research report in 2001. Goldman projected that their continuing GDP growth could be faster than the rest of the world, with the GDPs of China and India surpassing those of the major Western economic powers before the middle of the 21st century. To be sure, these “emerging markets” were not seen as without risk, but with their scale – large populations and records of substantial economic growth – they looked very attractive.

But there’s more to economic prowess than GDP statistics and stock market indices. This is not to gainsay the BRICs’ – especially China and India’s – economic momentum and remarkable development. Visitors to China cannot be but wowed by what metropolitan giants Beijing and Shanghai have become. India’s IT prowess dominates. But long term growth and economic leadership will ultimately have to be based on business environment basics. International metrics that go beyond GDP suggest the BRICs have a long way to go, and they're right.

For example, corruption, the acid that eats away at business confidence, rule of law and fair dealing. None of the BRICs rank very high in the 180-country survey published by Transparency International. Brazil and India come in at 80th and 85th place, roughly comparable to Burkina Faso, Saudi Arabia and Panama. Russia, unsurprisingly, is almost at the bottom, ranking 147th – Kenya and Syria being near them. China does best, at 72nd place – right down there with Mexico. And if the current murky scandal involving China’s steel industry which has ensnared executives from Australia’s Rio Tinto shows anything, it’s that corruption and the opacity of China’s legal system can rust business confidence away.

If there’s corruption, then it’s not so easy to do business there, as there is no way of doing business in a predictable manner. The World Bank studies “the ease of doing business” in 181 countries. Brazil, Russia and India stand between 120 to 125 in those tables. China comes in somewhat better, in 83rd place – a little higher than Belarus, a little lower than Kenya. The most difficult issues? Dealing with the local authorities in Russia and China; enforcing contracts in India’s clogged legal system, and, interestingly enough, taxes in Brazil.

And if social stability is a metric, then the fires that have fueled tragic communal violence in India and, more recently, China (which also suffers from tens of thousands “mass incidents” of citizens protesting corruption) have to be a concern. You don’t push too hard against entrenched interests in Russia, where arbitrary arrest and even murder can be the outcome.

Should we really be surprised? From these points of view, the BRICs don’t look that strong. These countries are all, in one way or another, still developing. Brazil, India and China have large problems of income distribution (more unequal than even the US), issues exacerbated by large but low productivity agricultural sectors and urban squalor. Brazil and Russia rank at midpoint in the 179 country United Nations’ Human Development Index; China is just slightly below and India, alas, is almost at the bottom. And Russia and China face demographic challenges. China is aging. Russia has even more severe population problems – it’s disappearing.

Having said that, we do have to remember the days of America and the wild west where very similar situations were part of the mix. The only difference was the strong Christian influence which helped temper much of this. The BRICs, in general, don't have that as part of the matrix, with the excpetion - to a small degree - of Brazil.

But could they be considered a bloc? Their economic, social and political systems differ considerably: Brazil’s economy is based on agriculture; India’s on services; Russia’s on price-sensitive energy resources, and China on manufactures for export. China and Russia have had problematic political relations; the disputed borders between China and India are still hot (and let’s not forget New Delhi’s concerns about the cozy relationship between Beijing and Islamabad). What do they share? Growth potential. And a desire to take the Yankee dollar down a peg. Is that sufficient to suggest that the answer to the world’s woes be found with the BRICs?

BRIC officials seem to think so. In the run up to the April 2009 G-20 meeting in London they pushed their own agenda, calling for new international finance rules, reform of the IMF and the World Bank, and resurrection of the Doha round. Overall, they are pushing for a multi-polar economic order, one less dominated by the US.

The Russians called for a new international currency backed by IMF SDRs (Special Drawing Rights) – an idea also picked up by Brazil and China. Indian Prime Minister Manmohan Singh said that the eyes of the world were on India in the “hope that India would be an engine of growth for the world economy.” Chinese officials touted their own “stimulus package” and quick action, noting the superiority of China’s command system “when it comes to making vital policy decisions.”

But at a “BRIC Summit” held in Yekaterinburg in July, there was less fire – a BRIC agenda did not surface. Still, the idea of a new international reserve currency hasn’t gone away. The problem there are the consequences of being a world reserve currency, which these countries probably aren't ready to, or willing to take on.

We raise these matters not to criticize the BRICs individually but rather to put a little realism into the crucial discussion of world economic recovery. First, they can hardly be considered a cohesive group. Second, sustainable leadership requires a sound business environment. On that score, the BRICs have a way to go.

To be sure, their equity markets seem to be doing well enough. But there’s more to an economy than GDP projections and speculative bets about the future of a few leading companies.

While some think the BRICs are overly hyped, I don't think that's the case in the long term; with the possible exception of Russia. They will play a huge role the economics of the world, and if nothing else, the populations of China and India, along with their growing middle classes guarantee that.

BRIC Business News

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 Illusion from Stimulus

BRIC business

We have to remember that a portion of the Chinese stimulus is being funneled into both stock market and real estate speculation... in fact the powers that be have gone ahead and quantified how much they believe it is. I'd argue the same is being done in the US at least towards the stock market but unlike the Chinese who admit it, the secretative government of the US won't. Always a hoot when the Chinese are more transparent than the US.... wait, wasn't that an election theme? Transparency? Contrast "Chinese Government Economists" with "US Government Economists" who are fighting even an having an audit done on their all powerful entity.

Chinese new bank loans worth about an estimated 1.16 trillion yuan ($170 billion) were invested in the stock market in the first five months of this year, China Business News reported, citing a government economist.

That’s 20 percent of the 5.8 trillion yuan loans banks extended in the period, the Shanghai-based newspaper said, citing Wei Jianing, a deputy director at the macro-economics department of the Development and Research Center under China’s State Council.

“Where did it go? It’s undeniable that a portion of the lending may have flowed into stock and real estate markets and triggered the rebound in these two markets,” the former official said at a financial forum in Ningbo city in eastern China.

2 months ago (May 20, 2009: Year to Date Returns by Country - Go Peru!) the order was Russia, India, China, and Brazil - thankfully "stimulus" can work in many ways i.e. pushing stock markets ever upward.

China's Shanghai Composite is currently up 81%, down days in recent months have been few and far between. Even though rest of the BRIC (Brazil, Russia, India, China) countries have posted big gains year to date, China has broken away from the pack. Overbought has become the new norm for the Chinese equity market, and anyone that has bet on a pullback has gotten absolutely crushed. Remember, however, that the sharper the increase usually means the sharper the fall, so when a correction does finally come, watch out.

Anything to create the mirage of prosperity going, it'll be interesting to see what happens when the correction mauls the Chinese and other stimulus whores.

BRIC business

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

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

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

Panasonic Growth In BRIC Countries

Panasonic Growth in BRIC Nations and Vietnam

Japan's Panasonic Corp announced it is looking for double-digit sales growth this fiscal year in the five major emerging markets it focuses on, including BRIC nations China and India, despite an estimated 10 percent fall in overall revenues.

"In our strategic markets of the BRIC nations and Vietnam, we aim for 13 percent growth by expanding our targets to people in the middle-income bracket," Panasonic President Fumio Ohtsubo told an annual shareholders' meeting on Thursday.

BRIC stands for the high-growth emerging markets of Brazil, Russia, India and China.

Panasonic was able to generate a small 2 percent sales growth to 420 billion yen ($4.4 billion) in the five countries in the fiscal year that ended on March 31, while it suffered a 14 percent fall in overall sales and an 86 percent plunge in operating profit as the global downturn dampened demand.

"It is extremely regrettable that we reported a sharp drop in sales and profit. As a person who is in charge of management, I sincerely apologise," Ohtsubo said.

"We are determined to meet shareholders' expectations by achieving stronger growth than competitors' when the economy recovers in the next business year onwards," he said.

Panasonic, which offers Viera flat TVs and Lumix digital cameras, vies with Sony Corp for the position as the world's largest consumer electronics maker.

Besides the BRIC nations and Vietnam, Panasonic has identified such countries as Mexico, Indonesia, Nigeria and Turkey as markets with strong growth potential and is preparing to increase its presence in those countries, Ohtsubo said.

He said its refrigerators and washing machines made a strong debut in Europe, where they were introduced in March, with unit sales exceeding its own targets by 21 percent in April and May. Shares in Panasonic, the world's largest plasma TV maker ahead of Samsung Electronics Co and LG Electronics were up 1.7 percent at 1,312 yen by late afternoon, underperforming the Nikkei average, which rose 2.7 percent.

Panasonic Growth in BRIC Nations and Vietnam

Power Shifting to BRIC Nations

BRIC Business

Economic conditions brought about by clueless and ignorant Western countries has hastened the power shift to BRIC and surrounding countries, as misguided and foolish policies are quickly bringing about the end of their overall affluence and power.

It will take decades to work off the largest increase in debt since World War II. The political costs may be permanent, laid bare at this week’s Group of Eight summit of leading industrial powers.

Bank bailouts and recession-fighting measures will explode the debt of the advanced economies to at least 114 percent of gross domestic product in 2014, more than triple the 35 percent of the main emerging economies including China, the International Monetary Fund forecasts.

The run-up in debt is quickening a power shift that saps the industrial world’s authority to force its economic doctrine, currency arrangements or greenhouse-gas reduction strategies. Even some G-8 officials acknowledge that the group has lost its grip amid the global recession they birthed.

The eight-nation forum that starts tomorrow in L’Aquila, Italy is “a lot less relevant given its makeup and given developments in the world,” French Finance Minister Christine Lagarde said July 5. “Big players, like emerging economies, India, China or Mexico, are invited, but they’re given only a jump seat outside of the main summit.”

The industrial world is beset by the harshest economic conditions in a lifetime: a projected U.S. budget deficit of 13.6 percent of GDP in 2009, unmatched since World War II; an annualized 14.2 percent contraction in Japanese GDP in the first quarter, also the worst since the war; in the first three months of 2009, German exports had their steepest quarterly decline since 1970 when the data were first compiled.

Market Capitalization

Reflecting the relative fortunes of the G-8 and emerging markets, developing nations’ share of worldwide stock-market capitalization has climbed to a record 24 percent from 15 percent at the start of 2007 as investors piled into the fastest-growing economies.

While the surge in borrowing has prompted calls for alternatives to the dollar as a reserve currency, emerging- markets policy makers aren’t near consensus on a plausible option. Chinese Deputy Foreign Minister He Yafei said July 2 the dollar will reign supreme for “many years to come.”

Staunching the recession, combating climate change, promoting trade and dealing with Iran top the agenda of the G-8, a grouping of 880 million people with combined GDP of $32 trillion that includes the U.S., Japan, Germany, Britain, France, Italy, Canada and Russia.

Divisions persist over dialing back stimulus measures -- Germany says now is the time to begin curbing deficits -- and the scope of financial oversight. Britain opposes more intrusive market oversight proposed by the European Union.

‘Global Crisis’

“Different countries are pulling in different directions and that is, I think, quite troubling,” said Niall Ferguson, a history professor at Harvard University in Cambridge, Massachusetts. The uncoordinated response is “one of the classic symptoms of a global crisis.”

While the eight deliberate, leaders of five developing economies -- China, India, Brazil, Mexico and South Africa -- hold a parallel summit nearby before the G-8 meeting.

Led by China, the emerging economies don’t share the “somber fiscal outlook” of the affluent world, the IMF says. The IMF says the debt won’t be repaid as quickly as after World War II, which ended with debt topping 250 percent of GDP in the U.K., 200 percent in Japan and 100 percent in the U.S.

In wartime, governments exercised “comprehensive control” over the economy and citizens felt a “moral duty” to buy war bonds, the IMF said in a June 9 report.

Rich nations’ debt constituted 78 percent of GDP in 2006, the year before the financial crisis took hold, while emerging- markets debt has dipped from 38 percent, the IMF says.

Declining Leverage

The industrial world’s borrowing spree “decreases its ability to maneuver,” said Paul Hofheinz, president of the Lisbon Council, a Brussels research group.

Lesser-developed countries upstaged last year’s G-8 in Japan. Arguing that emissions cuts would stunt the economic growth that is lifting millions out of poverty, they forced through a joint statement entitling countries to tackle global warming according to their “respective capabilities.”

The climate clash will be rerun in L’Aquila, as the countdown starts to a United Nations summit in December to hammer out a replacement to the Kyoto Protocol.

Russia plays a dual role, straddling the G-8 and acting in concert with developing economies. In a sign of the shifting world order, Russia last month hosted the first-ever summit of the BRIC economies -- Brazil, Russia, India, China -- financiers of $1.1 trillion in U.S. Treasury debt as of April.

Medvedev’s Call

How much U.S. debt to keep remains in dispute. Russian President Dmitry Medvedev and Indian economic adviser Suresh Tendulkar have questioned the dollar’s dominance of the world’s $6.5 trillion in currency reserves.

The BRIC meetings failed to endorse a Russian call for diversification from the dollar, showing it is easier to denounce the U.S.-led world order than come up with a viable alternative.

“The credibility of the Anglo-Saxon model is under threat,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in a Web commentary last month. “Yet there are no ready substitutes that are able and willing to step in.”

There is an increasing call from BRIC nations to supplant the U.S. dollar as the reserve currency, even though no certainty as to what should be the replacement.

BRIC Business

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

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

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 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

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.

Emerging Economies to Defy Financial Meltdown, According to Oxford Economics Report

Developed nations across the world might have been into recession, but emerging market economies, including India, will continue to grow though with clear signs of a slowdown, says a report.

According to the report by global economic research firm Oxford Economics, "The BRIC economies would continue to grow, but there would be a clear downturn. China is now forecast to grow by about 7 per cent in 2009, its lowest since 1990, and India is seen slowing to about 5 per cent."

Growth rate of 5-7 per cent looks significant amid the present scenario when the world GDP is expected to remain very weak in 2010, posting growth of just 0-1 per cent after the decline of 0.4 per cent in 2009, Oxford Economics said.

However, significant decline in major economies across the world, would have an adverse impact on the emerging markets, with even China and India suffering further slowdown as the world trade failed to recover, the report said, adding that "all of the major developed economies would post growth of little better than zero in 2010".

"Despite the aggressive monetary and fiscal easing, the U.S., the Eurozone, Japan and the U.K. are all now seen contracting by around 2 per cent in 2009," the report said.

These declines would certainly add to the threat of deflation, quite possibly prompting an even more aggressive monetary and fiscal policy response, Oxford Economics said and added that this in turn would add significantly to the chances of a period of higher inflation from 2011-12.

However, inflation is considered to be the traditional escape route from excessive debt and would guard against a repeat of the 1930's depression, the report added.

The slowdown in emerging market economies is largely because trade finance has dried up, capital inflows are dwindling and rolling over short-term debt has becomes more difficult.

The emerging countries, already being hit hardest because of slower world trade, are those that have been heavily dependent on exports for growth, such as South Korea, Taiwan and Hungary. The BRIC economies should be less affected given their stronger growth in domestic demand, but even China and India have relaxed policy quite aggressively in order to support their flagging economies.

Besides, the strong U.S. dollar has reversed corporate hedging strategies at the same time as investors are dumping emerging market assets. This has led to much higher emerging market spreads and, in an increasing number of cases, the need for emergency IMF funding, the report said.

The global financial situation remains fragile and there are still risks as stock markets remain volatile and house prices are still in decline in many countries, so the slide into recession will continue, Oxford Economics said.

As the major developed economies are all expected to contract next year and aggregate growth in the emerging markets slowing, the world GDP is seen shrinking 0.4 per cent in 2009, the first drop since the Second World War, the report said.

Meanwhile, the slowdown in world economies and lower commodity prices would result in a rapid decline in inflation.

As oil price is down around 70 per cent from their peak in July last year, inflation in the major economies would continue to fall steeply this year, reinforcing the prospect of further interest rate cuts in the U.K., the Eurozone and in many emerging markets, the report said.

"In the short term, the threat of deflation is now a serious one," it said.