Now welcome back to "Worldwide Exchange."
The BRIC nations.
It's a huge topic for the BRIC countries as they hold as leaders
of the world's largest emerging market economies.
The so-called BRIC nations are holding their first ever summit as a group.
They were the talk of Wall Street for a decade.
The future of globalization.
They were supposed to challenge the status quo.
But do you remember the BRICs?
The BRICs?
No.
No. [Chuckle]
Is it a tariff spat between U.S. and China.
Nope.
The BRIC stands for Brazil, Russia, India, and China and sometimes South Africa.
The term was coined by Goldman Sachs chief economist Jim O'Neill
in 2001, just days after 9/11.
It started to make me think that globalization essentially
equating to Americanization was over.
By that November, he issued the first report.
He argued that the four emerging economies would be growing so
fast they deserve to have a bigger voice in global governance.
But opponents said it was a marketing ploy.
One of the main points I was trying to make was actually about
shrinking the representation of European members of the eurozone
and making a more effective G7 than the one that existed.
So quite how that could be translated into some kind of
marketing slogan I have absolutely no idea.
The second report dreaming with the BRICS the path to 2050 was
published two years later.
The predictions were bold.
By 2040 the BRIC countries could take over the largest western
economies. After all the countries accounted for 40 percent of
the world population and 25 percent of the world's land.
The sky was the limit.
It was coming at a time when markets were, emerging markets were
opening up much more generally.
So for example China just joined the WTO.
So that meant more trade and more interest in the markets.
So Brazil had a financial crisis in the 90s that it ended in a
devaluation in 1999.
So it was coming up and opening up its markets after that.
Obviously, we had the Asian crisis in 97 and the Russian default then in 1998.
The concept exploded from creating a BRICS Development Bank to
business schools offering BRICS courses to investment equity
funds. The very fact they have this meeting should be
embarrassing the G7 countries.
Everyone wanted a piece of the pie.
I was at that time in charge of emerging markets for asset
management at HSBC and in 2004 we decided to launch
the first fund.
And the fund was so successful that after I
think a year and a half we had to close it to external
investors.
We were receiving enormous amounts of money every day.
I think it was the most successful product ever launched by HSBC.
In the decade following the four countries went from accounting
for less than 20 percent to nearly 30 percent of the world's
GDP.
It was clear that there was massive catch up potential not only
for the economies but also for the markets the size of the
markets and valuations of markets.
Good evening.
There were dire predictions.
Wall Street in panic mode this morning, comes after one of the
most dramatic days on Wall Street history. What's
been called the worst financial crisis in modern times.
But the BRIC economies avoided a total collapse, at least in the
beginning. Quantitative easing, massive stimulus and rising
commodity prices kept them afloat.
But that all changed in 2013.
After the period of quantitative easing that had pumped massive
amounts of money into the global economy,
the US was starting to think about tightening monetary policy.
So when the Fed tightens monetary policy then U.S.
treasuries become more attractive.
That means that the money flows back out of risky assets like
emerging markets and into safer assets and of the BRIC countries
Russia and China had current account surpluses so they were
relatively less vulnerable to global financial tightening
whereas Brazil and India had deficits at that time and so their
markets were quite badly hit.
It was during this time the main weaknesses of the BRICS concept
became obvious.
Internal turmoil and politics tipped some of them over.
In Russia of course we had the Ukraine crisis the annexation of
Crimea and so that caused investors to be concerned.
In Brazil we had the start of the so-called Lava Jato scandal
and culminated in the impeachment of President Dilma Rousseff.
So that really investors lost a lot of faith in Brazil.
On the other side of the coin, in India you had the election of
Prime Minister Modi and in China you had had stimulus really
since the financial crisis and that really really continued
so you had kind of a debt fueled growth of the economy.
But by 2014 China and India were responding positively to
domestic circumstances where Russia and Brazil were going in the
other direction.
By late 2015, which many called the end of an era Goldman Sachs
announced it was shutting down its BRIC Investment Fund. At
its peak, it had been worth over $800 million
but by closing it had lost a whopping 88%.
Implicit in some of the criticism I read about that is this
almost even crazier idea that one thought the equity markets in
the BRIC countries would always rise forever, which is obviously stupid.
In 2019, the 11th annual BRIC summit will be in Brazil and
even though the buzz has died off and most investment banks and
business schools have stopped offering BRIC specific courses or
funds, the concept has survived, even if just symbolically.
There are countries like the BRICs that are becoming as
important or more important than the G7 countries.
Therefore it makes sense to give them a voice in world affairs.
And now you've got the G20.
But now putting them in one grouping believing that there is
some consistency within this grouping, I don't think makes a lot of sense.
Today the BRICs are producing vastly different results.
Brazil and Russia's economies are 20 to 30 percent smaller than
they were back in 2011.
India and China have grown nearly 50 to 80%.
Seventeen years later we can kind now know for sure what I didn't
know when it all started that Brazil and Russia also heavily
dependent on commodities.
Their economies just go through this roller coaster ride.
I have jokes about this sometimes in the past couple years that
maybe I should have called it just ICs for India and China but I
don't really mean that because Russia and Brazil have obviously
really important places but for their economies to be truly
successful and to achieve what we projected for them by 2050,
they've got to reduce their dependency on commodities.
While the BRICS concept has died down a bit, emerging markets
remain a force to be reckoned with.
I don't think there's anything quite as snappy as the BRIC
acronym. Of all the other countries that we thought started
didn't include Indonesia theoretically probably has the biggest
justification because it's got fantastic dynamics and
intriguingly despite despite the number of global shocks since
the BRICS concept Indonesia has not had any major crisis.
And then you've also got countries that are that are open open to
trade dependent on exports so countries of Southeast Asia so
Thailan, Philippines. Vietnam I think's very interesting and I
can't help saying despite how chaotic and problematic
it is, just because of its staggering demographics Nigeria is an interesting too.