Global Investing

Britain’s aid programme for India hit the headlines this year, when New Delhi, much to the fury of the Daily Mail, described Britain’s £200 million annual aid to it as peanuts. Whether it makes sense to send money to a fast-growing emerging power that spends billions of dollars on arms is up for debate but few know that India has been boosting its own aid programme for other poor nations.  A report released today by NGO Global Health Strategies Initiatives (GHSi) finds that India’s foreign assistance grew 10.8 percent annually between 2005 and 2010.

The actual sums flowing from India are,  to use its own phrase, peanuts. The country provided $680 million in 2010. Compare that to the $3.2 billion annual contribution even from crisis-hit Italy. The difference is that Indian donations have risen from $443 million in 2005, while Italy’s have fallen 10 percent in this period, GHSi found. Indian aid has grown in fact at a rate 10 times that of the United States. Add to that Indian pharma companies’ contribution – the source of 60- 80 percent of the vaccines procured by United Nations agencies.

Other members of the BRICS group of developing countries are also stepping up overseas assistance, with a special focus on healthcare, the report said. BRICS leaders meet this week to ink a deal on setting up a BRICS development bank.

Here are the numbers for the other BRICS (according to GHSi report entitled ”How the BRICS are reshaping global health and development”)

*Brazil is estimated to have provided upto $1.2 billion, mostly to Latin America and Portuguese-speaking African nations such as  Mozambique. That’s an annual increase of 20 percent since 2005

Is the outlook for China’s yuan uniting the biggest global markets bulls and bears? Well, kind of.

As China posts its biggest trade deficit (yes, that’s a deficit) of the new millennium and its monetary authorities flag greater “flexibility” of the yuan exchange rate (the PBOC engineered the US$/yuan’s second biggest daily drop on record on Monday), the chances of an internationally-controversial weakening of yuan in a U.S. election year have risen.  A weaker yuan would clearly up the ante in the global currency war, coming as it does amid Japan’s successful weakening of its yen this year and as Brazil on Monday felt emboldened enough in its battle to counter G7 devaluations by extending a tax curbing foreign inflows.  And, arguably, it could bring the whole conflagration around full circle, where currency weakening in the BRICs and other emerging economies blunts one of the desired effects of money-printing and super-lax monetary policy in the G7 — merely encouraging even more printing and so on.

Societe Generale’s long-time global markets bear Albert Edwards argued as much last week:  “We have long stated that if the Chinese economy looks to be hard landing, as we believe it will, the authorities there will actively consider renminbi devaluation, despite the political consequences of such action.”

Robust growth from the emerging market basket in January was always going to be tough to beat, but research from February’s gains show just how strong these markets are performing against developed ones, and not just from the traditional BRICs either, research from S&P Indices shows.

Egypt has been a prime example. Following a bout of political unrest and subsequent removal of Hosni Mubarak after nearly 30 years in power, Egypt’s market returns have rocketed, climbing 15.3 percent in February on top of January’s 44.3 percent take-off.

Thailand, Chile, Turkey and Colombia are also on the to-watch list as these emerging lights have all flashed double-digit returns in the first two months of this year, while all twenty emerging markets included in the S&P data were up, gaining an average of 6.62 percent, making gains in the year-to-date a mouth-watering 18.95 percent.

It is Valentine’s day and emerging markets are certainly feeling the love. Bank of America/Merrill Lynch‘s monthly investor survey shows a ‘stunning’ rise in allocations to emerging markets in February. Forty-four percent of  asset allocators are now overweight emerging market equities this month, up from 20 percent in January — the second biggest monthly jump in the past 12 years. Emerging markets are once again investors’ favourite asset class.

Looking ahead, 36 percent of respondents said they would like to overweight emerging markets more than any other region, with investors saying they would underweight all other regions, including the United States. Meanwhile investor faith in China has rebounded  with only 2 percent of investors believing the Chinese economy will weaken over the next year, down from 23 percent in January. China also regained its crown of most favoured emerging market in February.

Last year, the main EM index plummeted more than 20 percent as emerging assets fell from favour. So what is the reason for this renewed passion in 2012?

Anyone worried about Greece and the potential impact of the euro debt crisis on the world economy should have a chat with Jim O’Neill. O’Neill, the head of Goldman Sachs Asset Management ten years ago coined the BRIC acronym to describe the four biggest emerging economies and perhaps understandably, he is not too perturbed by the outcome of the Greek crisis. Speaking at a recent conference, the man who is often called Mr BRIC, pointed out that China’s economy is growing by $1 trillion a year  and that means it is adding the equivalent of a Greece every 4 months. And what if the market turns its guns on Italy, a far larger economy than Greece?  Italy’s economy was surpassed in size last year by Brazil, another of the BRICs, O’Neill counters, adding:

“How Italy plays out will be important but people should not exaggerate its global importance.  In the next 12 months the four BRICs will create the equivalent of another Italy.”

Emerging economies are cooling now after years of turbo-charged growth. But according to O’Neill, even then they are growing enough to allow the global economy to expand at 4-4.5 percent,  a faster clip than much of the past 30 years. Trade data for last year will soon show that Germany for the first time exported more goods to the four BRICs than to neighbouring France, he said.

On a recent trip home to Singapore, I was startled to learn just how much housing prices in the city-state have risen in my absence.

A cousin said he had recently paid over S$600,000 — about US$465,000 — for a yet-to-be-built 99-year-lease flat. Such numbers are hardly out of place in any major metropolis but this was for a state-subsidised three-bedroom apartment.

Soaring housing prices have fueled popular discontent — little wonder as median monthly household incomes have stagnated at around S$5,000.

The speed of the backlash building against Russia’s paramount leader Vladimir Putin following this week’s parliamentary elections has taken investors by surprise and sent the country’s shares and rouble down sharply lower.

Comparisons to the Arab Spring may be tempting, given that the demonstrations in Russia are also spearheaded by Internet-savvy youth organising via social networks.

But Russia’s economic and demographic profiles suggest quite different outcomes from those in the Middle East and North Africa. The gathering unrest may, in fact, signal a reversal of fortunes for the stock market, down 18 percent this year, argue  Renaissance Capital analysts Ivan Tchakarov, Mert Yildiz and Mert Yildiz.

BRIC is Brazil, Russia, India, China — the acronym coined by Goldman Sachs banker Jim O’Neill 10 years back to describe the world’s biggest, fastest-growing and most important emerging markets.  But according to Albert Edwards, Societe Generale‘s uber-bearish strategist, it also stands for Bloody Ridiculous Investment Concept. Some investors, licking their wounds due to BRIC markets’ underperformance in 2011 and 2010, might be inclined to agree — stocks in all four countries have performed worse this year than the broader emerging markets equity index, to say nothing of developed world equities.

For years, money has chased BRIC investments, tempted by the countries’ fast growth, huge populations and explosive consumer hunger for goods and services. But Edwards cites research showing little correlation between growth and investment returns. He points out that Chinese nominal GDP growth may have averaged 15.6 percent  since 1993 but the compounded  return on equity investments was minus 3.3 percent.

But economic growth — the BRIC holy grail – is also now slowing. Data showed this week that Brazil posted zero growth in the third quarter of 2011 compared to last year’s 7.5 percent. Indian growth is  at the weakest in over two years. In Russia, rising discontent with the Kremlin — reflected in post-election protests — carries the risk of hitting the broader economy. And China, facing falling exports to a moribund Western world,  is also bound to slow. Edwards goes a step further and flags a hard landing in China as the biggest potential investment shock of 2012.  “Yet investors persist in the BRIC superior growth fantasy…If growth does matter to investors, they should be worried that
things seem to be slowing sharply in the BRIC universe,” he writes.

This year’s fall in global equities (down nearly 20 percent at one point) and tumbling bond yields, along with the euro zone sovereign debt crisis, are sowing the seeds for a new financial crisis – in the pension funds industry.

But which country is in the greatest need of pension reform?

Everyone, you may say, but a new study from Allianz Global Investors finds that Greece, India, China and Thailand need to reform their pension systems the most.

The study, which charts the relative sustainability of national pension systems in 44 countries, shows that India and China — two of the fastest growing emerging economies — suffer from low pension coverage and lack of adequate measures to improve the situation.

Come back Mr Fukuyama, all is forgiven.

In his 1992 book "The End of History and the Last Man", American political scientist Francis Fukuyama famously argued that all states were moving inexorably towards liberal democracy. His thesis that democracy is the pinnacle of political evolution has since been challenged by the violent eruption of radical Islam as well as the economic success of authoritarian countries such as China and Russia.

Now a study by Russian investment bank Renaissance Capital into the link between economic wealth and democracy seems to back Fukuyama.

Looking at 150 countries and over 60 years of history, RenCap found that countries are likely to become more democratic as they enjoyed rising levels of income with democracy virtually 'immortal' in countries with a GDP per capita above $10,000.