Coined by Goldman's rock-star Jim O'Neal, the acronym BRIC conjures up images of easily-attained fat returns. It's an illusion or a load of crock, whichever way you look at it. The recent addition of South Africa, somewhat contentiously, adds to the allure..
As a South African I don't deny the kudos of the association but has it changed the capital inflow? For now, at least, it's still too early to tell. What I do know, however, is South Africa's claim to some of the finest natural resource reserves anywhere on earth. Her infrastructure is Africa's most advanced. Corporate governance is entrenched; technology is current and management skills are innovative. Finding attractive investment opportunity in this country is relatively simple and with a very stable banking system settlement risk is greatly reduced. SA's problems lie in her politics and the socio-economic difficulties associated with her political past. Simmering rumours of resource nationalisation, constantly denied by government, is a variable of risk which is difficult, if not impossible, to quantify. Our economically disenfranchised youth are also becoming more militant. GDP growth of 1.3% is concerning. Even so, the so-called Japanese carry-trade, still views SA as one of its preferred investment havens. That assumes a stable currency and for now that's true.
That accounts for the S in BRICS but what about the rest?
B for Brazil is fast becoming the globe's bread-basket and with its associated infrastructure-spend and the price of soft commodities ie: food, you can't deny its importance. Dig a little deeper and you'll note that Brazil has a history of fiscal inefficiency and as a consequence more than its fair share of financial volatility. You wouldn't want to bet against another fiscal shock..
Russia pretends stability readily denied by its infamous disregard for corporate governance. Her oil and other natural non-renewable resources aside, her political instability and a virtually decrepit banking system make selective investment vital.
Ask any foreign businessman how difficult it is to operate effectively in C for China and you might begin to understand the cultural difficulties of 'the east'. Nevertheless, her infrastructure-spend and the extent of her peoples; more precisely her people's work-ethic exchanged for small reward, makes China an obvious investment choice. Even so, it's China's people, currently an economic strength, which adds disguise to her biggest weakness. I can't imagine that a highly educated people won't want more inclusion.. Socio-economic problems are just a click or two away.
Of the five associated countries India is the most interesting and also the most difficult to quantify. Tax-evasion is legendary. Entrenched ethnic segregation either geographically or on grounds of religion adds to political risk. Vast chasms between the rich and the poor are not socially sustainable particularly given the advanced levels of education her peoples generally enjoy. Nevertheless, India is vastly populated and demand for basic goods and resources will rise; her infrastructure is selectively sound, if only in the major urban metros; work-ethic is eastern rather than western ie: economically efficient and her peoples, generally, are well educated and ambitious. India like China, does have imminent socio-economic problems. Add internal religious intolerances and the risks escalate...
Assuming that emerging markets, BRICS the flagship, are a haven for fat returns is wrong. As always, do your homework and make selective choices. Inherent risks, well disguised, can be difficult to price.
As a South African I don't deny the kudos of the association but has it changed the capital inflow? For now, at least, it's still too early to tell. What I do know, however, is South Africa's claim to some of the finest natural resource reserves anywhere on earth. Her infrastructure is Africa's most advanced. Corporate governance is entrenched; technology is current and management skills are innovative. Finding attractive investment opportunity in this country is relatively simple and with a very stable banking system settlement risk is greatly reduced. SA's problems lie in her politics and the socio-economic difficulties associated with her political past. Simmering rumours of resource nationalisation, constantly denied by government, is a variable of risk which is difficult, if not impossible, to quantify. Our economically disenfranchised youth are also becoming more militant. GDP growth of 1.3% is concerning. Even so, the so-called Japanese carry-trade, still views SA as one of its preferred investment havens. That assumes a stable currency and for now that's true.
That accounts for the S in BRICS but what about the rest?
B for Brazil is fast becoming the globe's bread-basket and with its associated infrastructure-spend and the price of soft commodities ie: food, you can't deny its importance. Dig a little deeper and you'll note that Brazil has a history of fiscal inefficiency and as a consequence more than its fair share of financial volatility. You wouldn't want to bet against another fiscal shock..
Russia pretends stability readily denied by its infamous disregard for corporate governance. Her oil and other natural non-renewable resources aside, her political instability and a virtually decrepit banking system make selective investment vital.
Ask any foreign businessman how difficult it is to operate effectively in C for China and you might begin to understand the cultural difficulties of 'the east'. Nevertheless, her infrastructure-spend and the extent of her peoples; more precisely her people's work-ethic exchanged for small reward, makes China an obvious investment choice. Even so, it's China's people, currently an economic strength, which adds disguise to her biggest weakness. I can't imagine that a highly educated people won't want more inclusion.. Socio-economic problems are just a click or two away.
Of the five associated countries India is the most interesting and also the most difficult to quantify. Tax-evasion is legendary. Entrenched ethnic segregation either geographically or on grounds of religion adds to political risk. Vast chasms between the rich and the poor are not socially sustainable particularly given the advanced levels of education her peoples generally enjoy. Nevertheless, India is vastly populated and demand for basic goods and resources will rise; her infrastructure is selectively sound, if only in the major urban metros; work-ethic is eastern rather than western ie: economically efficient and her peoples, generally, are well educated and ambitious. India like China, does have imminent socio-economic problems. Add internal religious intolerances and the risks escalate...
Assuming that emerging markets, BRICS the flagship, are a haven for fat returns is wrong. As always, do your homework and make selective choices. Inherent risks, well disguised, can be difficult to price.
No comments:
Post a Comment