Broken BRICs?
http://www.marketwatch.com/news/story/story.aspx?guid={ADFF0790-ED3F-4B16-8FC4-6702D8EF91AA}&siteid=rss
Broken BRICs?
Brazil, Russia, India and China no longer unified trading concept, analyst says
By Polya Lesova, MarketWatch
Last update: 1:27 p.m. EST Feb. 27, 2009
NEW YORK (MarketWatch) -- Amid the devastation wrought by the global financial crisis, a leading strategist questions whether it still makes sense to lump together Brazil, Russia, India, and China, into the so-called BRIC group.
The term BRIC was coined in 2001 by Jim O'Neill, chief economist at Goldman Sachs, to highlight the potential of these four countries to become leaders in the global economy. Over the next few decades, Goldman argued, the growth generated by the BRICs could become a much larger force in the world economy than it is now.
"We, at Lord Abbett, were always skeptical of BRIC," because in emerging markets investors should have a lot of diversification, said Milton Ezrati, senior economist and market strategist at Lord Abbett, in an interview with MarketWatch on Friday.
"The whole concept behind the BRIC, that these four countries were leaders, is no longer the case today," said Ezrati, who published a report this week titled, "Broken BRIC."
Milton Ezrati, senior economist at Lord Abbett, questions the idea of lumping together Brazil, Russia, India and China, considering the big differences between the four markets. Russia, he argues, is "the biggest mess" right now, while India's Satyam corporate scandal has tarnished the country's reputation.
The MSCI BRIC Stock Index fell 60% last year. While all four BRIC countries were hit hard, Russia's stock market was the world's worst performer, with a 74% plunge. China was down 52%, India fell 65%, and Brazil shed 58%.
Russia is 'biggest mess'
Among the four BRICs, Russia is "the biggest mess," Ezrati said.
Over the last year, equities in Russia plunged, the ruble fell sharply against the dollar, and economic growth has rapidly deteriorated. Over $200 billion of Russia's international reserves were spent, largely to defend the ruble.
The severity of Russia's troubles "speaks to a remarkable economic mismanagement and points to another remarkable missed opportunity for a country that has by now grown famous for missing opportunities," Ezrati wrote in his report.
"The sad story is that Russia, under [President Dmitry] Medvedev and Prime Minister [Vladimir] Putin, has turned itself from a broad-based, potentially powerful industrial and resource economy into a more or less straightforward oil and gas exporter," he said.
Soaring oil prices were a bonanza for energy-rich Russia, but the recent collapse in oil prices has dealt a serious blow to the economy. Oil prices peaked last July around $147 a barrel, but are now trading below $50.
In contrast to Russia, Brazil is in much better shape, even though it too has suffered from the global crisis. Its currency and equity market have taken a beating, but it has a diversified array of exports, including agricultural products, minerals, and various manufactured goods.
"What is more, Brazil, instead of dithering on policy, as the Russians seem to be doing, has actually mounted a balanced program to deal with the economic and financial pressure," Ezrati said.
In Asia, India's prospects have been harmed not only by the global economic slowdown, but also by the financial fraud at Satyam Computer Services (SAY:
satyam computer services ltd adr
China's economy, while it will slow, will still continue to grow at a rapid pace, especially compared with the recession in much of the developed world.
China "risks socials unrest if they don't grow at least 8%," Ezrati told MarketWatch. "Chinese officials are riding a tiger, so to speak, and I believe they will respond to the situation." End of Story
Polya Lesova is a New York-based reporter for MarketWatch.