MacroScope

from Global Investing:

What worries the BRICs

Some fascinating data about the growing power of emerging markets, particularly the BRICs, was on display at the OECD's annual investment conference in Paris this week. Not the least of it came from MIGA, the World Bank's Multilateral Investment Guarantee Agency, which tries to help protect foreign direct investors from various forms of political risk.

MIGA has mainly focused on encouraging investment into developing countries, but a lot of its latest work is about investment from emerging economies.

This has been exploding over the past decade. Net outward investment from developing countries reached $198 billion in 2008 from around $20 billion in 2000. The 2008 figure was only 10.8 percent of global FDI, but it was just 1.4 percent in 2000.

Not surprisingly, the lion's share comes from the BRICS -- Brazil, Russia, India and China -- which together made up 73 percent of outflows last year. BRIC outward investment jumped to $144.3 billion in 2008 from $29.6 billion three years earlier.

Perhaps the most interesting data, however, concerned political risk insurance. MIGA studied the kind of insurance BRICs outward investors were taking to see what kind of things worried them.

from Global Investing:

Time to kick Russia out of the BRICs?

It may end up sounding like a famous ball-point pen maker, but an argument is being made that Goldman Sach's famous marketing device, the BRICs, should really be the BICs. Does Russia really deserve to be a BRIC, asks Anders Åslund, senior fellow at the Peterson Institute for International Economics, in an article for Foreign Policy.

Åslund, who is also co-author with Andrew Kuchins of "The Russian Balance Sheet", reckons the Russia of Putin and Medvedev is just not worthy of inclusion alongside Brazil, India and China  in the list of blue-chip economic powerhouses. He writes:

The country's economic performance has plummeted to such a dismal level that one must ask whether it is entitled to have any say at all on the global economy, compared with the other, more functional members of its cohort.

Women and economics, an online exhibit

A new exhibit called Economica: Women and the Global Economy is offering up an online look at how half the world’s population is making it through the current economic turbulence, in which, it says, women are “uniquely impacted”.

Presented by the web-based International Museum of Women, it consists of a series of slide shows looking at issues ranging from the impact of the U.S. mortgage crisis on families to survivng in Egyot with a shortage of bread to Middle East businesswomen redefining roles.

It also looks at credit for women in Latin America, growing debt in India and “Womb Economics”, which questions whether women are paying for China’s economic prosperity with policies that encourage abortion.

Instant View Video: Rebalancing global trade

Reuters correspondent Sumeet Desai talks about the G20 draft communique and what it means for rebalancing the world’s economy.

Instant View Video: The G20 communique

Reuters correspondent Emily Kaiser analyzes the G-20 draft communique.

from Changing China:

Starbucks and the overvalued yuan

 

 

 

 

 

 

 

 

 

 

Is latte at Starbucks in China overpriced or is the local currency, the yuan, unexpectedly overvalued? The former is certainly more plausible, but it might be equally true that the yuan, if not overvalued, is at least not as undervalued as other measures suggest.

This conclusion would come from my proposed Grande Latte index, the caffeinated equivalent of The Economist's Big Mac index. The Grande Latte index, like its burger brother, is a light-hearted attempt to find a basket of goods that can be compared across countries to assess purchasing power parity (PPP) and, by extension, fair currency value. There are serious flaws, but I will save these for, ahem, the bottom of this blog.

The cross-country cost comparison of grande (i.e. medium in Starbucks-speak) lattes shows that the Seattle-based coffee chain's brew is rather dear in China. A grande latte costs $3.75 in the United States but $4.10 in China in dollar terms. It is even more expensive in Japan. The conclusion, that the yen is currently overvalued by 23 percent, accords well with the views of many analysts. But the idea that the yuan might be overvalued by 9 percent flies in the face of pretty much all conventional wisdom. It is also a drastically different perspective than that of the Big Mac index, which in its latest edition showed the yuan to be 49 percent undervalued.

from Global Investing:

Another nail in the Malthusian coffin?

All the talk of addressing the global imbalances throws a spotlight on contrasting demographic trends in the world's two most populous nations -- China and India.

Prior to the financial crisis, India's annual growth rate of about 9 percent seemed positively moribund next to China's double-digit economic expansion. But purely on demographics, the dimming power of the US consumer could give India an edge over its neighbour in the longer run.

That's what India's trade minister Anand Sharma seemed to suggest last week when he reminded the audience at a London conference that the country had "20 percent of the world's children":

Essential reading for tomorrow’s leaders

Amid the sessions on managing risk, sustainable consumption and lessons from the recession, it’s refreshing to see that the World Economic Forum has carved out time to discuss the world of literature at its “summer Davos” meeting in Dalian, China. The aim of its panel on “Great Books for a Globalized World” is to ask, which classic and contemporary books from different cultures are essential for developing the personal values and professional philosophies of future leaders?

We asked one of the participants in the panel, Xie Youshun, professor of Chinese literature at the Sun Yat Sen University in Guangzhou, China , to give us his list. It’s published below, right above the box where we invite your suggestions for essential reading for future leaders.

1. New History by Chien Mu
2. Nineteen Lectures on Chinese Philosophy by Mou Zongsan (aka Mou Tsung-san)
3. Heavy Body (collection of essays) by Liu Xiaofeng, Shanghai Renmin Press 1999
4. Doctor Zhivago by Boris Pasternak
5. China 1957 (novel) by You Fengwei, Shanghai Wenyi Press 2001
6. Representations of the Intellectual by Edward Said
7. Face and Peach Blossom (2004 novel, aka “Renmian Taohua”) by Ge Fei
8. The Myth of Sisyphus, by Albert Camus
9. Gates of Eden, by Morris Dickstein
10. The Lesson of this Century by Karl Popper

China leading other markets?

It’s becoming increasingly common to blame Chinese stocks for recent volatility in global markets.

In some places, numbers do back up why China and other markets are increasingly moving in tandem.

According to Brown Brothers Harriman, the correlation based on percentage change between Shanghai stocks and the S&P 500 index has risen to 18 percent in the last three months. This compares with year-to-date correlation of 9 percent and 4.5 percent in the past two years.

from Global Investing:

The Big Five: Themes for the Week Ahead

Five things to think about this week:

CENTRAL BANKERS IN A HOLE
-- The global economy and financial system appear on the road to recovery but that is in large part due to unprecedented official stimulus that will have to be withdrawn at some point - the questions investors want answered are when, and how.  Central bankers no longer appear to be quite as shoulder to shoulder with one another on coordinated policy as they were last year in the aftermath of Lehman's collapse.
 

CHINA STOCK WATCHING
--  It is August, liquidity has dried up with the summer holiday season in full swing, and investors are palpably more cautious about the economic outlook now than they have been for months. It is against this backdrop that that the Chinese stock market is emerging as the focal point and driver of all other asset markets. The Shanghai Composite technically slipped into bear market territory earlier last week, shedding 20 percent in the two weeks from Aug. 4 to Aug. 19 on profit taking from the 90 percent surge this year. There is no major Chinese economic data scheduled for release this week, leaving thin markets at the whim of sentiment in what is a notoriously volatile stock market.
 

GROWTH FOUNDATIONS
-- The United States, Britain and Germany unveil revised estimates of Q2 economic growth. Revised GDP figures rarely garner much attention but with initial estimates from Germany, France and Japan earlier this month all showing that these countries exited recession in the last quarter, investors will be looking for further evidence the world economy has turned the corner. The hard data is stronger now than it has been for some time but is the global economy building a solid base for recovery, or is it more likely to buckle were authorities to begin withdrawing the massive fiscal and monetary stimulus?