Friday, April 13, 2012

Ruchir Sharma: BRICs story is played out

Ruchir Sharma is the author of Breakout Nations: In Pursuit of the Next Economic Miracles and also head of emerging market equities and global macro at Morgan Stanley.

"If you look at the history of investing, you find there's always some theme that captures the imagination in a particular decade, and then it runs out of gas the following decades."

On China:
People tend to overlook the fact that China, with a per capita income of about $6,000, has already become a middle income country. "And it's much harder to grow from a large base." Thirty years of a one-child policy have left China with a demographic imbalance. Rapid urbanization has been a huge driver of growth. But now, 50 percent of Chinese people already live in urban areas. "I'm not saying China is going to collapse, but it can't keep growing out at 8 percent. China is maturing as an economy and needs to slow down."

On India:
There's a lot of hope and promise in India, but India's economy is hamstrung by political corruption and poor infrastructure, and growth rate has settled into a 6-7% growth band.

On Brazil:
In 2011, Brazil turned in an unspectacular performance of about 3% growth. Sharma sees Brazil's struggles continuing, in part because it has an expensive currency. "That's making their industries uncompetitive"

On Russia:
Even with the continuing commodity boom, Russia's economy only managed to grow about 4% in 2011. He's also concerned about the huge concentration of wealth there with a disproportionate number of billionaires. With a Chinese slowdown, commodity economies will struggle going forward. Sharma's Four Seasons Index (how much it costs to stay at a posh Four Seasons Hotel) shows that Brazil and Russia are two of the most expensive emerging markets in terms of exchange rates.

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