BRICs well-placed for recovery

28 July 2009

NEW YORK: The BRIC markets – Brazil, Russia, India and China – will emerge more strongly from the financial downturn than most advanced economies, with rising levels of domestic demand in these countries acting as a key contributor to this trend.

In an interview with the Wall Street Journal, Jim O'Neill, part of a team of economists from Goldman Sachs who first coined the "BRIC" acronym in 2001, argued these nations are well placed to capitalise on changing economic realities.

He said this was mainly "due to the strength of economic fundamentals" in countries like China, where retail sales have increased by 18% on an annual basis during this year to date, compared with a severe contraction in the US.

Similarly, automotive sales in the world's most populous nation grew by 48% on an annual basis in June, largely as a result of the Communist government's stimulus package.

Indeed, O'Neill suggested the economic crisis has been a "good thing" for China, where "domestic demand has improved and there has been broader-based growth that is less dependent on exports."

Given their current position, O'Neill added that "I don't really count the BRICs as emerging markets,” as they are "too big for that", and are now acting as a model for many Western countries when it comes to re-shaping their banking systems.

In terms of looking to the next generation of key markets, Indonesia is one country with great potential, as it "appears to be on a gentle path to development based on domestic demand, despite the threat of terrorism."

Turkey's economy has also continued to grow, while Iran is "a highly technology-friendly society with a huge population", and Nigeria, Vietnam and Mexico are similarly well-placed to emerge in the future.

What the majority of these nations have in common is the size of their populations, which is "one of the most important factors to look at when selecting investments."

"If a country is able to create sustainable domestic demand, then it has a better chance of being resilient," O'Neill said.

However, while he also argued the "forward-looking price/earnings ratios for China and India are higher than in the US," he warned that "I wouldn't want to encourage people to invest in China and India who have never invested before."

Rather, he advised "it is currently cheaper to go via western multinationals," particularly as "emerging markets are a diverse set of countries" meaning "it doesn't make much sense to invest in a broad-based emerging-markets index."

Data sourced from Wall Street Journal; additional content by WARC staff