The rise – and the pitfalls – of BRIC bashing
There’s something of a groundswell of ‘anti emerging markets’ feeling in the financial media recently. Have you noticed that too?
We’re being repeatedly and exhaustively told – perhaps not unsurprisingly – by the Western media, that the party is over in the BRIC (an acronym for Brazil, Russia, India and China, coined by Jim O’Neill, the retiring chairman of Goldman Sachs Asset Management) countries.
For example, a columnist in the FT has written: “After a decade of infatuation, investors have suddenly turned their backs on emerging markets. The surprise is not that the romance is over but that it could have lasted for so long.”
Similarly, CNBC has run a report headlined: “As the world turns, BRICs no longer a slam dunk”; whilst Bloomberg has featured a story entitled, “BRIC markets sink to worst place for investors.”
I understand that this year the growth rates in these economies are predicted to be a little more than half of the pre-crisis rate, but, to my mind, the BRIC bashing is largely unjustified and is getting a little out of hand – indeed, it’s becoming a professional occupation for some.
So, why do I feel it’s not the end of the road for BRIC countries?
Well, let’s study some quick stats.
This year, China’s economy will grow by 7.8 per cent, India’s will increase by 5.6 and Brazil’s by around 2.5 per cent. The UK’s economic growth has just been revised up to 0.7 per cent.
China alone will contribute 40 per cent to global growth in 2013 – which is more than the US – largely due to a burgeoning middle class with a ferocious desire to spend and invest.
The BRIC nations have a collective population of approximately three billion –which represents about 40 per cent of the world’s total population; labour costs are significantly lower in BRICs, compared to other countries; and the BRICsare commodity rich – let’s not forget, for instance, that Russia produces a fifth of the world’s gas.
The other reasons why I’m generally upbeat about emerging markets include that they are improving in the education stakes, and enhanced education makes workers more productive according to almost every study ever undertaken; and also that global demand for the goods and services produced by these nations is still growing, albeit at a slower pace than before – largely due to the slowdown of western economies following the 2008 crash.
Additionally, I think it is worth stressing the point that at the height of the so-called ‘Asian Financial Crisis’ only a decade and a half ago, much of the Western media asserted the assumption that Asian economic growth was done and dusted. Much of the mainstream media in the ‘developed world’ at the time said – like it is now saying about the BRIC countries – that the economies of the likes of Indonesia and Thailand, amongst others, were all but dead. But Indonesia’s economy is now nine times the size it was in 1998 and Thailand’s three times. And will these countries slow down again in the future? Of course. Will they, subsequently, pick up again? Of course. But the longer term, overall trajectory for these emerging economies and the BRICS is upward.
In conclusion, whilst growth in the BRIC markets might have slowed, in relationto what it was a couple of years ago, it is still, in relative and overall terms, a‘tour de force’. As such, and for the other reasons I’ve mentioned, I feel it unwise for commentators to write-off growth in the main emerging markets, as the fundamentals that sparked it initially remain.
Nigel Green deVere Group blog