Few financial ideas have caught on as rapidly as “BRICs,” which stands for Brazil, Russia, India and China, the “Big Four,” fast-growth economies on the earth at present. Goldman Sachs economist Jim O’Neill coined the phrase back in 2003, and it at present has come into widespread use as a symbol of a shift in global economic power away from the developed G7 economies on the way to the developing world.
By dint of their sheer size and population — and their collective conclusion to hold their own particular brand of capitalism — BRICs are the economic way forward for the world. Together, the BRICs include above 25% around the globe’s land mass and 40% of the world’s population. And thanks to their predicted quick growth by 2050, the BRICs possibly will cover the joint economies of the current richest nations of the world. China and India will become the main worldwide suppliers of manufactured goods as well as services. Brazil along with Russia will be the world’s top suppliers of commodities. The BRICs in the present day already account for a combined GDP of $15.435 trillion dollars on a buying power basis. With that measure, they are already as a group better than the United States.
Here’s what Goldman Sachs had to disclose in its original report “Dreaming with BRICS: The Path to 2050,” published in 2003.
* China’s financial system will beat Germany in the following few years, Japan by 2015, as well as the America by 2041.
* India’s development speed will be the highest — not China’s — and it’ll overtake Japan (today the world’s second-largest economy) by 2032.
* BRICs’ currencies can go up in price by 300% over the following 50 years, given that a huge tailwind for investors in BRIC assets.
* Taken together, the BRICs could be larger than the United States as well as the developed economies of Europe in 40 years.
* By 2025, BRICs will bring another 200 million people with incomes above $15,000 into the world’s economy. That is be equal with to combined populations of Germany, France and the United Kingdom.
If anything, Goldman Sachs has become more confident on the BRICs because it published its primary report. The size of China’s financial system overtook Germany’s economy in 2008, a year earlier than projected, and will overtake Japan in 2010. Goldman Sachs now believes that the Chinese economy will overtake the America by 2027. And with India accounting for 10 of the thirty fastest-growing urban areas in the world and 700 million individuals moving to cities by 2050, its impact on the world economy can be bigger and quicker than implied in 2003.
The BRIC countries have stepped onto the world economic phase which has a new found confidence. Shanghai hosting the World’s Expo in 2010 highlights its target to become a world financial hub by 2020 — investing twice what rival Beijing did while hosting the 2008 Olympics. Brazil is going to embark on its own infrastructure boom because it is hosting both the World Cup in 2014 and then the Olympics in 2016. Two of the world’s top five on the Forbes Rich list are from India. (Primary is from Mexico.) In 2010, Moscow has the next-highest number of billionaires in the world after New York City.
Here’s why you will expect the BRICs’ roll to carry on. Firstly, for the first time in recent memory, BRICs are growing not by borrowing, but by investing. China has the world’s highest savings rate. Brazil and Russia are sitting on huge foreign currency reserves, thanks to windfalls from oil profits. Even freewheeling Brazil is showing heretofore unseen discipline by running a financial surplus.
Next, soaring commodity prices have put more money in BRICs’ pockets than ever before. Which means much less risk of the financial meltdown like the ones Brazil and Russia had in 1980s and 1990s.
Finally, higher credit rankings mean that BRICs today can issue debts in their currencies. A decade following defaulting, Russia has higher credit ranking than the European Union economies of Greece and Portugal. The result? More stable financial increase and financing of investment that both depend on the whims of foreign investors.
Here is a reality check though. In spite of their recent high profile, BRICs have to get a lot of things right to copy the success of Japan, Germany and South Korea. Potential problems include China’s oppressive regime, India’s choking bureaucracy, Brazil’s history of policy flip-flops and Russia’s gangster capitalism.
So yes, the BRIC economies are together already approaching 15% better than the United States. However take away the financial affirmative action of purchasing power parity, and look at wealth in real terms, as well as the U.S. GDP ($14 trillion) is almost 40% larger than all four BRICs combined ($8.6 trillion). Using real GDP, the common United states is nearly 15 times richer than her or his BRIC counterpart. In fact, one can find 2.6 billion total citizens in the BRICs with only 308 million Americans. And regardless of the nation’s billionaires, more than 200 million Indians live on less than $2 a day.
And historical prediction is known as a mug’s game. The year 1900 had its own version of BRICs: Argentina, Russia, Austria-Hungary as well as United States were the fastest-growing economies in earth. Investors were clamoring to buy Russian railroad bonds for the same reasons that they are investing in Chinese solar stocks in the present day. What did the world seem like in 1950? Two world wars and several revolutions later, Austria-Hungary and Russia didn’t even exist; Argentina went from economic bull to basket case, and also the United States was a world superpower, responsible for 50% of the world’s economic production.
Cautionary tales notwithstanding, BRIC countries today offer some of the most exciting investment opportunities on the planet. It’s possible earn more money in one month investing in BRIC stocks than what you may grind out in S&P over 3 years. Brazil’s stock market, the Bovespa, has gone from about 9,000 in September 2002 to over 70,000 in May 2008. Savvy investors in Russia made above 60 times their money between the meltdown in September 1998 and the market’s peak in May 2007.
And today, it can be less complicated than ever to invest in BRICs. Along with companies listed on the New York Stock Exchange, 34 are Brazilian, six are Russian, eight are Indian and 16 are Chinese. And that does not include technology businesses which can be listed on the Nasdaq. There are some BRIC exchange-traded fund also — iShares MSCI BRIC Index (BKF) and SPDR BRIC 40 (BIK).
Buying BRICs can offer you the most fascinating and moneymaking ways to take a position over the coming decades.