BRIC Economies Diverge

The factor that united the BRIC nations was that their economies were on the upswing and many expected Brazil, Russia, India and China to match the economies of North America and Europe later in the 21st century. That prediction has been put on hold as the BRIC economies diverge from their recent rapid ascent. MarketWatch reports on how BRIC investing went bust.

Taken together, the BRICs encompass more than 25% of the world’s land mass and 40% of the world’s population. And the combined Gross Domestic Product (GDP) of the BRICs comfortably exceed that of the United States. Adjust for Purchasing Power Parity (PPP), and the BRICs already account for 52% of the planet’s GDP.

After the financial meltdown of 2008, investors flocked to the BRICs favoring them over stagnant, developed economies like Old Europe, aging Japan and the politically fractious and indebted United States. Not unreasonably, investors expected the value of their portfolios to rise with the prospects of these newly anointed kings.

Today, U.S. markets trade within striking distance of their all-time highs. In contrast, the MSCI BRIC Index languishes 48% below its 2007 peak — the year the iPhone was launched and George Bush was still president. This year has been particularly unkind to BRIC investors.

China

The Chinese stock market tanked and the government has given up supporting it. The seemingly miraculous Chinese economy is slowing down and many expect Chinese growth the match that of the USA or EU by the end of the decade. The yuan falls in value now when allowed to float against other currencies.

Russia

The fall in oil prices has been very cruel to Russia but other problems are self-inflicted. Russian adventurism in annexing Crimea and sending Russian troops to fight with separatists in Ukraine has brought about economic sanctions. Russia is in a recession and the ruble is suffering.

Brazil

As the Chinese economy slows so do raw material orders for Brazil and Brazil is in a recession. Their president is at risk of being impeached and corruption scandals abound. Brazil is putting its first world ambitions on hold for the time being as the real suffers.

India

The one bright spot as the BRIC economies diverge is India. India is growing faster 7.7% per year than the inflated figures reported by China and certainly faster than the real Chinese growth. The world’s largest democracy has seen its currency, the rupee, rise against a strong dollar.

The Rupee

As BRIC economies diverge and India prospers so does the rupee. The Financial Express reports as the rupee continues higher versus the USD.

Rising for the second consecutive day, the rupee closed 3 paise higher at 66.19 against the US dollar today on fag-end selling of the greenback by banks and exporters.

The rupee has gained 29 paise, or 0.44 per cent, in the two days. In the global market, the US dollar index, which tracks the greenback against a basket of six major rivals, was up by 0.33 per cent.

When the Indian economy prospers so does the rupee as BRIC economies diverge.

Versus The Yuan

Reuters reports on a depreciating yuan and stable rupee.

The Chinese yuan will weaken further over the next 12 months as policymakers ramp up efforts to support the economy through further stimulus or another currency devaluation, a Reuters poll found.

The People’s Bank of China sent shockwaves through global financial markets on Aug. 11 by devaluing the currency by nearly 2 percent, triggering fears of a currency war.

Though policymakers have repeatedly tried to reassure markets since then that they see no reason for further declines, many traders believe there is political pressure for a deeper depreciation as the world’s second-largest economy slows.

Conversely the rupee is stable.

The Indian rupee, on the other hand, is expected to rise slightly over 1 percent in a year, as investor inflows into the economy offset the impact of an expected hike in interest rates in the United States.

The fact is the BRIC nations are not homogeneous and neither are their currencies. Brazil, China and Russia have problems with no immediate relief in sight. India has gotten its act together to the benefit of its economy and the rupee.