MacroScope

Jim O'Neill, the Goldman Sachs economist who coined the term BRICs back in 2001, is adding four new countries to the elite club of emerging market economies. But does his new edifice have the same solid foundations?

In future, the BRIC economies of Brazil, Russia, China and India will be merged with those of Mexico, Indonesia, Turkey and South Korea under the banner “growth markets,” O'Neill told the Financial Times.

Hmmm.  Doesn't quite grab you like BRICs, does it? The Guardian helpfully offers an amended branding banner of  "Bric 'n Mitsk" (geddit?). But which ever way you cut it, it's hard to see a flood of investment conferences and funds floating off under the new moniker.

Ten years ago, Goldman had this field to itself. Now more and more acronyms are being bandied around by  banks  seeking to pique investors' appetite for higher returns.

Goldman has already launched the N-11, or Next Eleven countries, and other contenders include the VISTA economies (Vietnam, Indonesia, South Africa, Turkey and Argentina), the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) and the EAGLES (Emerging and Growth-Leading Economies).

The programme may strike a different  note -- this year's Davos is apparently all about Shared Norms for the New Reality -- but much of the discussion at the 41st World Economic Forum annual meeting in Davos this month will have a distinctly familiar ring to it.

Last January, the five-day talkfest in the Swiss Alps was dominated by Greece's near-death experience at the hands of the bond market and recriminations over the role of bankers in the financial crisis, as well as worries about China's rapid economic ascent and a lot of calls for a new trade deal.

Fast forward 12 months and not much has changed.

Ireland has joined Greece in the euro zone's intensive care unit and Portugal and  Spain are getting round-the-clock monitoring. The annual round of bankers' bonuses is once again stirring up trouble. China looms larger than ever on the global stage, after overtaking Japan in 2010 to become the world's second-biggest economy. And trade ministers who signally failed to make headway last year say they really must get down to business when they meet on the sidelines of Davos this time round.

Wal-Mart, the world's largest retailer, now has 189 stories in China, according to its website. Soon it will have many more.  The U.S. chain has announced plans to open a series of "compact hypermarkets", using a bare-bones model developed in Latin America, the Financial Times said.

Wal-Mart stores are a bit different than the one's you might find in, say, Little Rock Arkansas. They sell live toads and turtles for one thing, The Economist reported. But they also sell the appliances, gadgets, and housewares that Wal-Mart stores merchandise everywhere.

And business is booming. Third-quarters sales in China soared 15.2 percent from a year earlier, according to the Financial Times story, compared with a paltry 1.4 percent inthe United States.

How quickly times change. Russia's stock market, unloved for months, last week overtook India to be the best-performing of
the four BRICs.  The Moscow stock index jumped 5 percent last week, posting its biggest weekly rise in seven months, bringing
year-to-date gains to 17.5 percent. Fund managers such as Goldman Sach's Jim O'Neill, creator of the BRICs term, are predicting it will lead the group next year too.

So what's with the sudden burst of enthusiasm for Moscow? One catalyst is of course soccer body FIFA's decision to award
the 2018 Soccer World cup to Russia. Investors are piling into infrastructure stocks, with steel producers especially tipped to
benefit as Russia starts building stadia, roads and hotels.  But the bigger factor, according to John Lomax, HSBC's head of emerging equity strategy, is the optimism that has started creeping in about U.S. -- and world economic growth.

Some of that may have been dampened by Friday's lacklustre U.S. jobs data. But overall, checks of U.S. economic vital signs show the economy looking sturdier than it was six months ago and most banks, including the pessimists at Goldman Sachs, have upped 2011 growth forecasts for the world's biggest economy. And China and India are continuing to grow at rates close to 10 percent.  All that is great news for the commodity and oil stocks -- the mainstay of the Russian market. Merrill Lynch, for instance, expects oil prices to be $10 higher by next December than now.

Some eye-catching numbers from Standard Bank out today on the influence of BRICs countries — Brazil, Russia, India and China — on Africa.

First off, the bank says the global recession and its recovery have been nourishing these so-called South-South ties. But it is all now ready to take off. The bank estimates:

– By 2015, BRIC-Africa trade will have incresed threefold, to $530 billion from $150 billion this year.

One of the most closely guarded secrets at the APEC summit in Japan’s port city of Yokohama this weekend is not what the Asia-Pacific leaders might say about currencies and global imbalances. No, that’s all going to be thrashed out at the G20 meeting Thursday and Friday in Seoul. The big topic of speculation here at the Pacifico Yokohama Convention Center is what the leaders will wear when they gather for the annual class photo that concludes the meetings.

U.S. President George W. Bush (L) and his Russian counterpart Vladimir Putin wear Chilean ponchos at APEC meeting  in Santiago in 2004. REUTERS

The last time Japan hosted the Asia-Pacific Economic Cooperation summit was 1995 in Osaka. There the leaders, apparently trying to depict the Japan Salaryman look, came out in business suits. Nobody remembers much about that APEC meeting, except that it took place in the magnificent, gold-embellished Osaka Castle. 

Joschka Fischer was never one to mince words when he was Germany’s foreign minister in the late ’90s and early noughts. So it is not overly surprising that he has painted a picture in a new post of a world with only two powers — the United States and China — and an ineffective and divided Europe on the sidelines.

More controversial, however, is his view that China will not only grow into the world’s most important market over the coming years, but will determine what the world produces and consumes — and that that will be green.

Fischer, who was leader of  Germany’s Green Party, reckons that due to its sheer size and needed GDP growth, China will have to pursue a green economy. Without that, he writes in his Project Syndicate post, China will quickly reach limits to growth with disastrous ecological and, as a result, political consequences.

Early September skirmishes turned this week into full-scale “currency wars”, to use Brazil’s terminology. Dramatic language, but not unwarranted. The markets have taken Fed signals of preparation for further money printing as an effective attempt at a dollar devaluation, allowing the country export its deflationary pressures overseas via capital outflows to higher-yielding developing countries.

The major developing nations, for all the arguments favouring currency revaluations of 20-25% over the next couple of years, are not going to stand idly by and watch that happen overnight. But their attempts to offset the impact of soaring local currencies and attendant asset bubbles merely floods local economies with cash at a time when fighting inflation — not deflation — is their priority. Brazil has raised the red flag, but the likes of Turkey and Taiwan are also registering fears about the impact of another bout of US monetary pump priming. Meantime, the gloves are off in the US-China yuan row; possible trade measures are being invoked in DC; and there is little chance of cooler heads prevailing this side of the US mid-term elections. This story will run.

What’s certain is the G20 finance meeting in South Korea on Oct 22 has significant work to do. Next week the battle lines are already drawing up at the Asia-Europe summit in Brussels (and China’s PM Wen and Japan’s PM Kan both travel) and then the annual IMF/G7 meetings in DC. The key US September payrolls report on Friday, for good measure, may be the deciding data set for the Fed to pull the trigger on QEII. And also meeting next Thursday is the Bank of England, itself back in a QE frame of mind if you listened this week to one of its policymakers Adam Posen  

Live video of Timothy Geithner’s testimony to the U.S. Senate Banking Committee today.

It is beginning to look like financial markets cannot handle more than three risks. First we have, as MacroScope reported earlier,  Barclays Wealth worrying about U.S. consumers, euro zone debt and Asian overheating.

Now comes Jim O'Neill and his economic team at Goldman Sachs, with three slightly different notions about risks in the second half, this time in the form of questions. To whit:

1) How deep will the U.S. economic slowdown be and what will  the policy response be? (That's two questions, actually, but let's not nitpick).