How India And China Broke Out From The BRICs - YouTube

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.