Archive
Reuters blog archive
from David Rohde:
Prosperity without power
A woman walking near the headquarters (L) of the Federal Security Service, in central Moscow, May 14, 2013. REUTERS/Maxim Shemetov
In Moscow, they are “non-Soviet Russians.” In New Delhi, they are a “political Goliath” that may soon awake. In Beijing and São Paolo, they are lawyers and other professionals who complain about glacial government bureaucracies and endemic graft.
Prosperity is spreading in many emerging market nations, but political change is not.
Economic liberalization has sparked vast economic changes in the BRIC nations – China, India, Russia and Brazil. A middle class that was once made up of government servants is now dominated by private-sector employees.
from Global Investing:
China data: Lessons from Yongzheng
This is a reference when the People's Bank of China makes big decisions.Difficulty in collating accurate data is perhaps not so surprising, given the rapid urbanisation of the world's second largest economy. Off-beat labour statistics (employing dissimilar methodology to the ILO) are partly skewed due to a large number of temporary registrants that slip the official statistics net. The solution? Jinny Lin at Standard Chartered, who thinks China's real GDP level is more likely around 5.5 percent, suggested this could be taken from the history books. Emperor Yongzheng, China's ruler in the late Qing dynasty, set up an independent body to look at data at the local level, and successfully stemmed tax evasion.
If local data is reliable enough, we should use local data.
Source: Flikr creative commons
Problems are found at a local level too, however. While the current system sets local government officials' bonuses for better GDP growth, there is no penalty for supplying incorrect data, neither are local government officials assessed on the jobs they create but via a points system. Instead local governments have 'soft' and 'hard' targets to attain, according to the panellists, some of which include environmental targets.
from Global Investing:
It’s all adding up – emerging markets to drive global spending
The world's leading ad agencies are positioning themselves in Brazil, Russia and China -- countries that are expected to provide almost a third of the growth in global advertising over the next three years. That's according to a report by S&P Capital IQ Equity Research, a unit of publishing giant McGraw Hill.
Most major advertisers already have a foothold in these BRIC economies, where the advertising market is projected to grow by an average 10.7 percent a year over the next three years -- more than three times the growth rate in the developed world. Over the next 15 years, big emerging markets will add $200 billion to the global ad spend, S&P Capital IQ reckons.
from Global Investing:
BRIC banks reap ratings reward from government support
The ability of Brazil, Russia, India and China to support their leading banks is tightly correlated to the credit rating on the banks, according to ratings agency Moody's. The agency compares the ratings of four of the biggest BRIC banks which it says are likely to enjoy sovereign support if they run into trouble.
China's Industrial & Commercial Bank of China (ICBC) tops the list of BRIC lenders with a rating of (A1 stable) thanks to the central bank's $3 trillion plus reserve stash.
from David Rohde:
The BRIC laggard
SAO PAULO – For decades, Denis Dias’s parents could never break into Brazil’s middle class. They started a bakery and a pizzeria in the 1970s and 1980s, but the country’s economic instability and hyper-inflation consumed their businesses and their hopes. His father ended up owning a newsstand. His mother worked as a maid. And Denis attended dilapidated state-run schools.
Over the last 10 years, Denis and at least 35 million other Brazilians have achieved their parents’ dream. Denis is a corporate lawyer at a Brazilian energy company and a new member of Brazil’s middle class, now 100 million people strong. Denis, his company and his nation have ridden the exports of iron ore, soy, oil and other natural resources to prosperity.
from Global Investing:
Carry currencies to tempt central banks
Central bankers as carry traders? Why not.
As we wrote here yesterday, FX reserves at global central banks may be starting to rise again. That's a consequence of a pick up in portfolio investment flows in recent weeks and is likely to continue after the U.S. Fed's announcement of its QE3 money-printing programme.
According to analysts at ING, the Fed’s decision to restart its printing presses will first of all increase liquidity (some of which will find its way into central bank coffers). Second, it also tends to depress volatility and lower volatility encourages the carry trade. Over the next 12 months these two themes will combine as global reserve managers twin their efforts to keep their money safe and still try to make a return, ING predicts, dubbing it a positive carry story.
from Global Investing:
No BRIC without China
Jim O' Neill, creator of the BRIC investment concept, has been exasperated by repeated calls in the past to exclude one or another country from the quartet, based on either economic growth rates, equity performance or market structure. In the early years, Brazil's eligibility for BRIC was often questioned due to its anaemic growth; then it was the turn of oil-dependent Russia. Over the past couple of years many turned their sights on India due to its reform stupor. They have suggested removing it and including Indonesia in its place.
All these detractors should focus on China.
China's validity in BRIC has never been questioned. Aside from the fact that BRI does not really have a ring, that's not surprising. China's growth rates plus undoubted political and economic clout on the international stage put it head and shoulders above the other three. And after all, it is Chinese demand which drives a large part of the Russian and Brazilian economies.
from Global Investing:
Olympic medal winners — and economies — dissected
The Olympic medals have all been handed out and the athletes are on their way home. Which countries surpassed expectations and which ones did worse than expected? And did this have anything to do with the state of their economies?
An extensive Goldman Sachs report entitled Olympics and Economics (a regular feature before each Olympic Games) predicted before the Games kicked off that the United States would top the tally with 36 gold medals. It also said the top 10 would include five G7 countries (the United States, Great Britain, France, Germany and Italy), two BRICs (China and Russia), one of the developing countries it dubs Next-11 (South Korea), and one additional developed and emerging market. These would be Australia and Ukraine, it said.
from Global Investing:
Lower rates give no respite to Brazil stocks
In normal times, an aggressive central bank campaign to cut interest rates would provide fodder for stock market bulls. That's not happening in Brazil. Its interest rate, the Selic, has fallen 350 basis points since last August and is likely to fall further at this week's meeting to a record low of 8.5 percent. Yet the Sao Paulo stock market is among the world's worst performers this year, with losses of around 4 percent. That's better than fellow BRIC Russia but far worse than India and China.
Brazil's central bank and government are understandably worried about a Chinese growth slowdown that would eat into Brazilian commodity exports. They are therefore hoping that rate cuts will prepare the domestic economy to take up the slack.
from Global Investing:
In defence of co-investing with the state
It's hard to avoid state-run companies if you are investing in emerging markets -- after all they make up a third of the main EM equity index, run by MSCI. But should one be avoiding shares in these firms?
Absolutely yes, says John-Paul Smith at Deutsche Bank. Smith sees state influence as the biggest factor dragging down emerging equity performance in the longer term. They will underperform, he says, not just because governments run companies such as Gazprom or the State Bank of India in their own interests (rather than to benefit shareholders) but also because of their habit of interfering in the broader economy. Shares in state-owned companies performed well during the crisis, Smith acknowledges, but attributes emerging markets' underperformance since mid-2010 to fears over the state's increasing influence in developing economies. (t
