Understanding BRIC BRIC, a term first coined back in 2001 by Goldman Sachs, refers to the countries of Brazil, Russia,

India and China, and is poised to become major economic powers by 2050. These nations represent a shift in power away from G6 countries and played a crucial role in stabilizing and preventing the worlds output from plummeting during the recent financial crisis. With developed countries struggling to pick themselves up in the aftermath, these emerging markets are under unprecedented spotlight as investors look to them for new investment opportunities and diversification. According to reports from The Economist, they are now the four largest economies outside the OECD, and are the only developing economies with annual GDPs of over US$1 trillion. A sign of their rapid industrialisation is the fact that China has now become the largest CO2 emitter in the world, releasing 7.5 billion tonnes in 2009, accounting for 24 percent of the global total. Russia is close behind at third and India coming in fourth. But perhaps the most striking sign of their rising significance is their share of foreign exchange reserves. All four are among the ten largest accumulators of reserves, accounting for 40% of the worlds total. If the BRICs put aside one-sixth of their reserves, they could create a fund the size of the IMF. So is now the time for investors to get involved? This article finds that, whilst it is useful to discuss BRICs as a block in some respects, the countries are now so divergent that investors need to look at each of them individually, and look at where they differ to find the ideal investment level. Fundamentally, they lack the coherence to change as a group. Two are authoritarian, two are democracies. Moreover, they differ economically and compete with each other as well as with developed countries. Their incomes range widely, from Russias US$15,000 per head per year to Indias US$3,000 (IMF figures using Purchasing Power Parities). China and Russia are huge exporters, whereas India and Brazils exports account for only a fifth of GDP. Their future seems to drift even further apart. Russia has a falling population and low fertility rate. The working-age populations of India, China and Brazil will all rise between now and 2030, particularly in India and Brazil. Despite these differences, they are working together intensively, to insulate themselves from the economic problems in US and Europe. Rising affluence is also further fuelling demand for goods and trade with one another. For example, China is now Brazil's top trading partner, surpassing the United States for the first time last year, consuming almost 14 percent of Brazils imports in 2009. Brazilian imports from China jumped 12fold from 2000 to 2009, and exports went up a whopping 18 times. Furthermore, improvements in corporate governance and lower barriers of entry mean that emerging markets have now become more mainstream as investors embrace the potential for significant growth from these fledging markets.

Understanding BRIC Brazil Brazil did not avoid the downturn, but was amongst the last in and the first out. Its economy is growing again at an annualised rate of 5%. This speed should pick up even more in the coming years, as new oilfields come of stream, and exports are still sought after from its mineral rich land. Demand for Brazilian debt is also growing, with bond inflows up from US$1.8bn in 2009 to US$2.8bn in 2010. Despite this, there are still weaknesses in the economy. Government spending is growing faster than the economy as a whole. The Brazilian currency, the real, has gained almost 50% since December 2009, making imports cheaper but exporting more difficult. Meanwhile, there are still a number of obstacles to doing business with difficult rules and cumbersome procedures imposed on tax payments and employment. Overall the outlook for Brazil remains positive, with care taken over the downsides of currency strength and the volatility still inherent in emerging markets. Analysts believe that in the decade following 2014, Brazil is likely to become the worlds fifth largest economy, overtaking Britain and France. Russia Since the collapse of the Soviet Union, Russia has been moving away from a centrallyplanned economy to a market-based and globally-integrated economy. Most industries have gone through a period of privatization, as the government strives to combat inefficiency and corruption thats been impeding the countrys progress. Having said that, Russias economy is still very much concentrated and geared towards the commodity markets. The CIA World Factbook entry shows that in 2009 Russia was the worlds largest exporter of natural gas, the second largest exporter of oil, and the third largest exporter of steel and primary aluminum. This makes it vulnerable to boom and bust cycles that follow the highly volatile swings in global commodity prices. The countrys GDP growth for the year is expected to be more than 5%. However, investors should still be cautious, with long-term challenges including poor infrastructure, a shrinking workforce, and high corruption rate still to be tackled. India Indias political stability and economic liberalisation have attracted foreign direct investment (FDI), particularly over the last ten years, with cumulative FDI equity inflows into India over US$100 billion from April 2000 to March 2010. In 2007, before the world economic slowdown, the Indian economy grew at more than 9% and has shown resilience during the downturn, still achieving growth of over 6% during 2009 and annual growth of over 8% is predicted for 2010, according to the World Bank. At this rate, India is well position to overtake China as the fastest growing economy.

Understanding BRIC India benefits from the fact that it is less exposed to the global economy and its banks remained relatively conservative, with low credit lines. With the country requiring less fiscal stimulus during the downturn than, for example, China, its growth may be seen as more sustainable. There are many opportunities for investors to benefit from this, particularly in logistics and other sectors, which will be direct recipients of expansion. China As in the case of Russia, China has changed from a centrally planned system that was largely closed to international trade to a more market-oriented economy, fuelling rapid growth in the private sector. Reforms include the gradual liberalisation of prices, fiscal decentralisation, the development of stock markets, the rapid growth of the non-state sector, and the opening to foreign trade and investment. The most recent trade figures show exports up by 18%, year on year, and imports up by a staggering 56%. This confirms that domestic demand is robust. The country even managed to come out of the downturn relatively well. In 2008, when Americas economy stumbled, analysts said that Chinas export-led recovery would suffer from a collapse in American spending. Instead, they decoupled from each other, with China achieving 8.7% GDP growth in 2009. Chinas ambitions are high. Officials have even talked about a long-term goal of replacing the dollar as the global reserve currency. It is this aim for growth and further integration with the world that is spurring investment. Yet for western economies there are plenty of risks involved. The investment push is likely to herald an era of competition between developed-world nationals and state-owned Chinese companies. Bank lending is growing too fast, which may be fine if it is going into useful investments, but not if it is fuelling asset prices, and therefore a bubble. The risk of these bubbles and excess capacity will grow unless policy is tightened. Looking Ahead - Is this the BRIC Decade? All these facts point out that companies and governments in the developed world have to face up to the reality that there will be a further shift in the economic balance of power in the years ahead. Leading global companies that fail to understand and optimize the opportunities in emerging markets may lose out on significant revenue growth, said John Nendick, Global Media & Entertainment Leader for Ernst & Young. It seems that the only way to help stabilize the global economy in the long term is by promoting the economic development of major emerging markets, particularly China and India. These countries are massive population centers, and the development of consumer classes in these countries will be the primary driver of global economic growth for the next few decades.