| BRIC Summit: What is the point? |
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| Written by Gary Howes |
| Wednesday, 17 June 2009 10:41 |
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"This reminds me of the apocryphal meeting between George Bernard Shaw and Marilyn Monroe." Threadneedle’s Head of Global Emerging Market Equities, Julian Thompson, comments on the BRIC summit being held in Russia: “The BRIC summit being held in Yekaterinburg, Russia, presents economists with another opportunity to discuss whether this grouping makes any sense and whether they truly do have anything in common other than their size. This reminds me of the apocryphal meeting between George Bernard Shaw and Marilyn Monroe. GBS supposedly suggested to Monroe that they should pool their interests; “With my brains and your looks, imagine what children we could have. "Monroe apparently declined the offer, noting that their children could also end up with his looks and her brains. In the case of BRICS, there isn’t much in common between them but that is not the point – they are complementary and are already developing close ties regardless of formal political affiliation. China has the capital, Brazil and Russia have the resources. "Thus China has recently passed the US as Brazil’s biggest trading partner while China is also increasingly a provider of capital to Russia and Brazil in return for guaranteed access to their resources, particularly oil. In fact, China has recently agreed long-term supply contracts with Petrobras in Brazil and Rosneft in Russia worth over US$35bn. India would clearly like to be involved also but lacks the capital to compete with China. “From a growth perspective, these economies are all at different stages of recovery. China is leading the way, spurred by huge fiscal stimulus while India also showed very respectable growth of 6% in the first quarter. Brazil saw a slight contraction in economic growth but this was a much better outcome than analysts were expecting. Indeed, domestic consumption, far from contracting, actually expanded in the first quarter, suggesting that a quick recovery is in prospect once investment spending picks up from the very depressed levels of the first quarter. Russia is a laggard in the growth stakes but has those all important resources that China and India want to get their hands on. It also isn’t short of capital. The question is how the capital gets from the public sector to the private sector. So far the Kremlin has managed this process extremely well and fears of a wholesale nationalisation of Russian industry have receded as the government has supported private business. “We remain very positive on the outlook for emerging markets. We believe that the relative differential in long-term growth potential will increasingly be recognised as these economies emerge from the crisis. While the green shoots may be thin on the ground in developed markets, the recovery in emerging market economies, especially the BRICs, is more readily visible. “Our emerging markets funds favour Brazil, Russia and China from an investment perspective. India continues to have excellent long-term growth prospects but appears a little expensive relative to other emerging economies.” 
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