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."

Mark Mobius Continues Buying BRIC

Mark Mobius, manager of Templeton Asset Management Ltd., says he has continued buying stocks in Brazil, Russia, India and China (BRIC) over the last 30 days, and considers the drop in the market a correction, in what he believes is an ongoing bull market.

Mobius said about BRICs, “Despite the fact that a lot of people think that we are entering into a bear market, we don’t believe so. This is a correction in an ongoing bull market.”

From its April 15 high, the MSCI Emerging Markets Index has plunged 14 percent, the reason many have been running from them.

The European sovereign debt crisis and the challenge China faces with inflation has driven down the emerging markets, and other markets as well, which has in turn cut demand for raw materials, which is what these countries have a huge exposure to.

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

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

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

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

India’s Polished Exports Down 24%

With close to $20 billion a year at stake, the diamond industry in India has taken a big hit, and, depending on what reports you read, anywhere from 250,000 to about 350,000 jobs have been lost.

One problem with the figures are the estimates for diamond workers in the area are so wide, that it's hard to really know how many jobs are lost, where there really isn't any idea how many there were in the first place. Estimates are that between 400,000 and 600,000 people were working in the industry, with about 200,000 left.

Surat City, which is not only the hub of diamond cutting in India, but in the world, has suffered tremendously from the slowdown, and students preparing to take a job in the sector are obviously concerned over whether there will be one when they leave school.

For the quarter ending March 31, 2009, according to Rapaport, India’s polished exports plunged 33 percent to $2.8 billion, while polished imports fell 12 percent to $1.6 billion. The country’s rough imports dropped 71 percent to $738.6 million, and its rough exports declined 5 percent to $164.7 million.

Most of the decline in exports has come from drying demand in the U.S. for small diamonds. Exports of diamonds to Europe has also dried up.

As usual in these difficult economic times, business is looking to the government to bail them out, and as usual it won't work.

The diamond industry in India has asked the government to continue offering interest free loans to manufacturers of diamonds, with the misguided belief it will stimulate the industry.

That's also a false assumption, as all markets are based upon consumer demand, and if demand isn't there, it doesn't matter how much a government gives to any industry, it won't increase sales.

For now, this business trend will continue to go on like it has, and until the global economic situation changes, that'll remain the same for the India diamond industry and the Surat region.

BRIC Economies Slowing but will Still Remain Healthy

While there's no doubt every country in the world is being hurt by the economic crisis, BRIC countries will continue to grow, albeit at a significantly slower pace than in the recent past. The CIS states, as far as emerging markets go, will be hit the worst, according to the International Monetary Fund.

For BRIC countries, Russia's growth will drop to about 3.5 percent, a decline of 2.6 percent; Brazil will fall by close to 2 percent; and India will fall by over 3 percent in GDP. China will also plunge by about 3 percent, but will still grow at a healthy rate of over 8 percent in 2009.

One positive development that is helping the BRIC countries is a growing middle class, which has created domestic demand for products and services, which in turn is helping bolster their economies, even as their export markets dry up.