After fast growth in the last few years, the BRIC countries (Brazil,
Russia, India and China) are facing a maturation time. The global slowdown has
hit the major emerging markets economies hard, but the BRIC nations have not
hit a brick wall in terms of growth, says Mark Mobius, the executive chairman
of Templeton Emerging Markets Group who directs the Templeton research team
based in 15 global emerging markets offices and manages emerging markets
portfolios.
According to Mobius, although the growth forecast for the BRIC
countries has disappointed investors, some deceleration in China’s growth
rate was almost inevitable. On the other hand, Brazil is the one nation within the
group which gives investors most cause for concern. “(Brazil’s) GDP growth in
recent years has been below that of India and China, and a populist and
interventionist tradition in government has left the country with unusually
high taxes, a relatively high minimum wage compared to its peers, and
potentially troublesome pension and benefit entitlements for public sector
workers”, says the executive.
Another problem in Brazil is the nationalist policies in some key
industries, especially energy, which tended to slow and complicate some investment
programs. “The government has been moving to address some of its challenges,
notably with measures to curb pension costs for state employees, and there are
signs of a renewed appetite for privatization. Meanwhile, we believe domestic
consumption could advance, supported by a young and dynamic working population,
powering a gradual diversification of the economy”, says Mobius
Brazil, from the four emerging markets, may also be more
vulnerable to fluctuations in the prices and demand for commodities. “However,
in our opinion, we don’t see short-term commodity pullbacks leading to
long-term weakness, as growth in several other emerging economies appears
likely to continue to support demand”, says the executive.
In China, some deceleration in the growth rate was already expected,
given the size of the country’s workforce. “In this context, forecasts of
around 7% annual growth this year (as opposed to the near 10% average annual
gains seen in recent years) seem entirely rational to us”, says Mobius. The
executive chairman of Templeton Emerging Markets Group reminds that China’s last Government Work Report, the Chinese Premier Wen Jiabao projected a 7.5%
growth rate for 2012. To Mobius, however, this forecast might prove to be
conservative.
In contrast to China, India’s troubled government has been
struggling to implement necessary investment and infrastructure projects. A
number of populist and anti-business initiatives has also eroded investor
confidence in recent months. “There was also concern that measures to support
consumption were crowding out private sector investment and leading to
balance-of-payments deficits”, says Mobius.
According to Mobius, while more reforms could be made, the actions
of the Indian government and its central bank represent positive steps to
restore the investors’ confidence. Moreover, the government measures can
potentially set the stage for better growth going forward. “Despite its
obstacles, India’s economy has proved adept at generating growth in recent
years without heavy investment and with a much better ratio of growth to
capital spending than China.”
In Russia, the recent gross domestic product (GDP) numbers shows
the economic growth remains strong. “A heavy dependence on the oil and gas
industry could represent a risk factor, as oil accounts for the bulk of
Russia’s exports and a considerable portion of federal budget revenues”, says
Mobius. “However, we feel that an oil price crash is unlikely, at least in the
near or medium-term. In addition, the government recently announced ambitious
economic reforms aimed at addressing the country’s dependence on commodity
exports”.
According to Mobius, the BRIC nations aren’t hitting a growth brick
wall, but if emerging markets in general continue to achieve strong economic
growth in the coming years, the BRIC countries will have to scale a few
obstacles.
China offers the best opportunities
China’s economic growth has not increased as much as it did in the last
few years, but the country still offers the best opportunities to investors.
This is the opinion of Jim O’Neill, chairman of Goldman Sachs Asset Management
who coined the acronym BRIC ten years ago. China’s gross domestic product (GDP)
might grow around 7% or 7.5% this year in contrast of the near 10% average
annual growth seen in recent years.
According to an article published by Forbes, O’Neill believes the
size of the Chinese economy put the country in a unique position to deal with
the economy slowdown after the European debt crisis. The chairman of Goldman
Sachs had showed his preference for China to a group of investors in Singapore this
weekend.
China’s government is trying to move the country away from an
export driven economy to one that focuses more on domestic consumption.
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