Rebuilding the world economy: BRIC by BRIC

Are there good times ahead for emerging markets?

Although recruitment at BRIC focused divisions is falling in Europe, with the onset of recession, the BRICs are as strong as ever.

Experts are agreed that we are approaching one of the hardest economic scenarios in some time, with some of Mr Brown's closest advisers talking of this recession as being the "worst in a century". Over the past Ten years most European and US stock markets have yielded returns close to zero, if not worse. In the same period, the BRICs - Brazil, Russia, India and China - have seen double digit growth.

One consequences is recruitment for Moscow, Sao Paolo, Delhi, Hong Kong and Shanghai offices at corporate presentations in Universities here. Could this be the best time to look at employment opportunities in the emerging markets? That may be too early to tell but we can see robust strength in BRICs for some time to come.

Currently however, fear is so prevalent that markets in the BRICs are falling. Russian markets have tumbled 70% over the last 12 months, although a recovery is now being staged. Brazilian oil stocks have retreated from there all-time highs. Indian corporate culture has been stung by the recent Satyam scandal. China's export driven economy has slowed with Western demand.

Nonetheless, the fundamentals are all heading in one direction, and we can expect growth, albeit muted in all four markets. Global strategist Romasa Storey sees strength across the board as internal demand within the BRICs picks up slack from the over-indebted US consumer- "The BRICs are the economic leaders of the 21st century". Eventually when the market moves away from its current hysteria it cannot deny the value in large resource based economies. We analyse each of these here.

Brazil

Currently a mineral play, Brazil has metal and oil wealth, in addition to a rapidly expanding middle class population which is becoming a key market for goods and services. The political and legal environs, if not completely liberalised, are mostly welcoming to business. Brazil has the third largest company in the Americas in PetroBras, bigger than Micrsoft and BP, with majority control resting with the government. Innovation in bio-fuels has spurred economic growth. Mario Balletto, Citigroup analyst said "Demand for metals has has shown steady growth in January". Consumers are still spending within Brazil. Having said that Brazil isn't immune with significant corrections in the BOVESPA index, reflecting fears that the Obama stimulus may not work. Asked about the economic slowdown, Mr Balleto says contraction makes it harder to persuade funds to invest in Brazil, but that sustained economic growth is the long term story. "Investors need to consider some exposure to this asset class".

Russia

The old cold war adversary has taken to capitalism wholeheartedly. Russia boasts huge mineral wealth and good science and technical based human capital. With a population of 160m, it is a large consumer market in its own right. The surrounding states are still influenced by Russia and the language, so that goods and services designed for Russian markets can serve Uzbek, Ukrainian and Kazakh populations among others. ING Economist Alex Kuznetsov says that the impact of the credit crunch has been dramatic for the Russian economy with significant declines in major assets, but this is indirect, due to falls in the price of oil. Over time the opportunities in Russia are significant. Mr Kuznetsov sees Russia benefiting from increased liberalization and trade with both the East and West. There are reasons to believe this. Russia's strategic position between linking China, Central Asia the Middle East and Europe could yield significant returns with the right business model. However, bureaucracy and demographic constraints of a shrinking population are obstacles to be overcome. Not to mention the political interference in business that has had investors fearful of returning to Russian markets after it defaulted on its sovereign debt in 1998-but with profitability ratios of 50% or more, it is only a matter of time before they do.

For now, Mr Kuznetsov believes that oil price will determine currency movements and this in turn will affect the cheapness or otherwise of the assets in Russia. Russia's rebound could be amongst the most dramatic given the huge declines its indices have suffered.

India

India shows great potential and its economy has grown at a steady rate for decades now. With a huge population and few natural resources the economy is dominated by services and government spending. Despite large problems of income inequality the country has among the world's largest middle class along with Egypt. This potential market for high end goods is driving the creation of shopping malls across the country. In the future, if educational provision can be made in rural areas, India can expect to make the most of its youthful workforce.

"Infrastructure, particularly roads and utilities, is essential if the country is to fulfil its potential" Aaron Patel, engineer at Larsen and Toubro - the Indian construction conglomerate, explains. "The credit crunch may have impact on the spending of some consumers, but Indian spending on roads, water works, and power stations won't be affected".

Recently, the problem of corruption came to international attention with the mis-stated profits of Satyam computers. This reduced investor appetite for Indian equities and corporate debt and damaged the image of corporate India which still holds the remnants of family dominated businesses. The market has since rebounded and we can expect Indian equities to see continued growth this year.

China

Following Six months of manufacturing contraction the Chinese economy responded to the new year with increased demand for iron and steel, so much so that ports were full. The Chinese growth story has been a phenomenal success of planned and controlled capitalism. In the last quarter century the economy has averaged 10% per annum growth. Expect that success to continue over the longer term, although this has been priced in to many Chinese assets. Given the dangerous Waltz that the Chinese economy finds itself in with the US, there may be short term difficulties - GDP growth slowed to an annualised rate of 6.8% in the final quarter of 2008 mainly due to falling demand for Chinese exports in the West. Over a longer horizon, the stimulus package to increase domestic demand is likely to have a positive impact on growth.

Liu Lim - Investment Consultant with Watson Wyatt in Japan says "the Chinese administration is adept at planning around contractions, so expect the country to continue posting great results for some time to come".

As more and more talented professionals look East (and South) for opportunities, expect students to follow. Mr Kuznetsov says that although the work is the same, the business culture and nuances of working in non Anglo-Saxon regime are something to consider. "Although employment prospects are better in the medium term, the standard of competition is very similar to NY or London".

The story of the BRIC countries is that of potential human and physical capita, which is being aided by their voracity to save. Fundamentally, demographic and technological environments favour these countries over developed economies. With the Western economy looking to be on a downward spiral, the future prospects of many graduates may well lie with one of these big four emerging

powerhouses.

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