Brics Economies Produce High Return, Yet Investors Hesitate; Russia and Brazil Cause the Most Unease with Their Volatile Economies and History
ANYONE looking for evidence of the new world order should look no further than the Brics, those four countries - Brazil, Russia, India and China - identified almost a decade ago in a ground-breaking report from Goldman Sachs, which claimed their economic output would surpass those of the current richest countries of the world by 2050.
The numbers speak for themselves.
Brazil's was 5.7% last year, in the depth of recession - and it has proven to be the most affected by the global downturn. Russia's economy grew by 13.9% between July and September compared with the previous quarterS , even though it shrank by 8.9% compared with the same three months a year ago. India has averaged growth of 7.5% a year for most of the past 10 years, while China - the giant of the four - saw its growth slow to 9% in 2008. Even the most bearish commentator doesn't think those figures will go down from here.
Yet investors remain cautious about the Brics. There's something that just doesn't feel quite right about putting money in countries with recent turbulent histories, or those that are just so far away, even though investment funds that concentrate on developing economies have continued to perform extremely well, usually outstripping other funds focused on other geographical locations.
Of course, it's not anywhere near enough to take a look at overall economic growth and dive straight in with the cheque book. And so it proves to be if you delve but a little deeper.
The two Bric countries that cause the most unease are Russia and Brazil. With the former, it's the fragility and resultant volatility that causes the jitters.
Russia has built its post-Soviet economic success largely on exports, particularly in raw materials - oil, gas, metals and timber have accounted for 80% of what it has sold abroad. When recession hit and oil sales plummeted, Russia was hard hit. A hike in prices earlier this year helped its economy back on the road to recovery but will any investor - much less a cautious investor - want to invest in a country whose prosperity is based upon commodities? Even Russian president Dmitry Medvedev acknowledged the economy's precarious situation when he called the revival in markets "weak and unstable".
But what Medvedev didn't add is that the political situation in Russia, which appears to outsiders still very much in the iron grip of Vladimir Putin, doesn't help build confidence, even though the country's real economic miracle occurred under its former president. Like Russia, Brazil has proven adept at building and then dashing investor belief. So long hailed as the land of false promise, as recently as the middle 1990s it was plagued with hyperinflation, hitting 2,489% at one point in 1993. …