Exclusive outtakes from industry leaders
from Global Investing:
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.
Thomson Reuters data earlier this year appeared to show some disenchantment with the BRIC concept. After rising 1600-fold between 2003 and 2007, assets in BRIC funds had shrunk to $28 billion by August 2011, almost a quarter below 2007 peaks, a bigger fall in percentage terms than most other fund categories.
Jim O’Neill, the new Goldman Sachs Asset Management chairman who is famous for coining the term BRICs for the world’s new emerging economic giants, reckons he knows why Germany might not be rushing to bail out all the euro zone debt that is under pressure. Europe is not as important to Berlin as it was.
Speaking at the Reuters 2011 Investment Outlook Summit being held in London and New York, O’Neill pointed out that in the not very distant future Germany will have more trade with China than it does with France.
Banker bashing has become a bit of an international sport — and fraud allegations against Wall Street giant Goldman Sachs and a U.S. class-action suit against Germany’s Deutsche Bank has added more grist to the mill. So it’s small wonder that a bank lobby group struck a wistful note at the Reuters Global Financial Regulation Summit in London on Tuesday.
“No politician, for the next couple of years, is going to be close to a banker, hug a banker, be friendly to a banker,” said Mark Austen, the acting chief executive of AFME (Association for Financial Markets in Europe). “They (banks) are seen as institutions that have caused a crisis … We are still faced with a public’s anger to the banking community … It will take time to rebuild that trust.”
First of all, Securities and Exchange Commission Chairman Mary Schapiro would not talk about Goldman Sachs.
There was no drawing her out. The head of the agency that filed a civil fraud lawsuit charging that Goldman misled investors would not say a word about the case.
Gary Gensler, chairman of the Commodity Futures Trading Commission, likes to go to the past — sometimes as far back as 1,000 years — to explain the financial situations of today.
For example, derivatives existed for 145 years, since the Civil War, and they became regulated in the 1930s, he said at a Reuters Global Financial Regulation Summit in explaining that derivatives need regulation.
New York and a handful of other major U.S. cities are down, but will never be out as far as their commercial real estate goes, a leading New York real estate private equity investor said Monday at the Reuters Global Real Estate Summit.
“New York’s not going away- it’s THE global city.”
Second tier cities are another matter entirely, said Thomas Shapiro, president of GoldenTree InSite Partners. “We are a big believer in the big city theory which is that the bigger cities will continue do better, to the detriment of secondary cities.”
Asked to give a letter grade for the performance of U.S. Treasury Secretary Henry Paulson during the credit crisis, Goldman Sachs’ senior investment strategist Abby Joseph Cohen laughed. “I spent several years where he provided a performance review to other people,” she told the Reuters Investment Outlook Summit, about the former Goldman CEO. To find out how Paulson fared in Abby’s eyes, please click here