The Breakdown of the BRICs

We at Fluent In Foreign have been recommending to our readers to look beyond the BRICS for over a year. Now Bloomberg sums up latest market events, which fully validate our recommendations.

Bloomberg/Business Week

Is the decade-long BRIC dream over?

Bloomberg reports that capital flight from Brazil, Russia, India, and China has sent their bonds, currencies, and stocks down together for the first time since 2006.

Since 2003, when Goldman Sachs (GS) predicted this league of developing economies would join the ranks of the world’s biggest, the MSCI BRIC Index has returned about 227 percent; this year, however, it’s trailing the Standard & Poor’s 500-stock index by the most since 1998. From 2005 through last year, investors piled $52 billion into BRIC mutual funds, according to research firm EPFR. This year investors have yanked $13.9 billion from the category.

Anything BRIC seems to be struggling. Last quarter the MSCI BRIC Index fell 12 percent; BRIC government bonds lost an average of 0.6 percent, and their currencies fell 4.1 percent against the dollar. That’s the first time emerging-market stocks, bonds, and currencies have dropped together, according to data compiled Bloomberg going back seven years. China is looking at its weakest annual expansion in more than two decades. India’s current-account deficit has pushed the rupee to an all-time low. Oil’s drop has slowed Russia’s economy for five straight quarters, and Brazil is dealing with poor growth, rising inflation, and street protests.

“Every decade there’s a theme that captures investors’ imagination—the 1970s was about gold, 1980s was all about Japan, and 1990s was about technology companies,” Ruchir Sharma, the head of emerging markets at Morgan Stanley (MS) Investment Management, told Bloomberg News. “Last decade it was about the BRICs. That theme has basically run its course.”

“After years of strong growth, the BRICs are beginning to run into speed bumps,” International Monetary Fund Chief Economist Olivier Blanchard said at a Tuesday press conference.

The selloff could be overdone. The MSCI BRIC Index’s 17 percent drop this year has left it trading at 1.2 times net assets, a 36 percent discount to the MSCI All-Country World Index. This for a group of economies that represented 62 percent of global growth last year, compared with just 11 percent a decade ago.

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

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