O’Neill’s BRICs Risk Hitting Wall Threatening G-20 Growth – Bloomberg 06-14-12

Salient to Investors:

A prolonged slowdown in the BRICs threatens a world economy in its weakest spell since the end of the 2009 recession, which the BRICs helped shorten by contributing about half of the international expansion since 2007.

Citigroup’s surprise index, which measures how much data miss predictions, is at minus 81.10 for the BRICs, down from 15.8 three months ago and the weakest of all its gauges.

BofA Merrill Lynch survey of emerging market equity funds shows outflows in eight of the last 10 weeks, with asset managers at their lowest exposure since October.

The Indian rupee, Russian ruble and Brazilian real are the three worst performing currencies this quarter of 25 emerging-market currencies.

Chinese consumer prices rose the least in two years in May and manufacturing expanded at the slowest pace in six months.

India’s 5.3 percent expansion in Q1 was the weakest in nine years – S&P warns India downgraded unless growth picks up and political roadblocks to decision-making are overcome.

BofA Merrill Lynch estimates a one percentage point drop in the GDP of emerging markets is the equivalent of a 1.7 point fall in the U.S. 

Emerging markets have record international reserves and bigger than ever domestic capital markets.

A Societe Generale poll of emerging market investors shows 47 percent are bearish toward emerging markets in the near term, versus 79 percent bearish  in May.

Brazilian soy, iron ore and other commodity exports to China are on course for their worst performance in a decade.

Predictions:

Economists at Morgan Stanley, Bank of America Merrill Lynch and Citigroup Inc. are lowering their forecasts for emerging markets.

Goldman Sachs’ Jim O’Neill said that the BRICs face challenging times as investors dump their stocks. However he expects China to remain robust and the BRICs to grow 7 percent this year versus 7.5 percent in 2011. China last year generated the economic equivalent of Greece every 11 1/2 weeks, while the BRICs contributed almost the equivalent of Italy’s GDP. O’Neill is more concerned by Brazil’s weak growth and India’s policy paralysis than by China, which is on track to become a more consumer-led economy.

O’Neill still expects the BRICs to join the U.S. and Japan as the world’s biggest economies by 2050, though their potential growth rates have probably peaked, which is to be expected.

 BCP Securities’ Walter Molano said emerging market debt ratios could soar if their currencies, which are overvalued by as much as 60 percent, weaken – the marketing hype surrounding the BRICs has run its course.