Los próximos 10 años serán para los BRICS
The next ten years of BRICS - will the relationship last?
Over the years, many observers have expressed skepticism about the BRICS (Brazil, Russia, India, China and South Africa) initiative - and skeptics within the BRICS member states perhaps outnumber those outside.
The reason is a clear lack of traditional logic behind the coming together of these countries. They are dispersed geographically, their economies are in different stages of development and there is a fair degree of ideological dissonance between them. And unlike other economic associations, BRICS does not seek to set up any common political or security architecture.
However, this should not obfuscate the fact that the purpose of BRICS was clear from its inception: to form a convenient and pragmatic 21st-century relationship that pools the influence of its members in order to achieve objectives agreed to by all five countries. In a multipolar world in which economic and political power is rapidly diffusing, the BRICS nations seek to influence and shape the norms of global governance, which have been fashioned by the Atlantic system in the past. BRICS, then, is a coming together of nation states at a particular geopolitical moment to achieve a set of goals.
Each member of BRICS also has their own reason to sustain this plurilateral movement. Russia sees BRICS as a geopolitical counterweight to the eastward expansion of the Atlantic system. For South Africa, BRICS is a means to legitimize its role as a gateway to and powerhouse of the African continent. BRICS allows Brazil to collaborate in the shaping of the Asian century, despite its geographical location. China participates in the forum because it recognizes BRICS as an important vehicle for fashioning governance systems in which its political influence is commensurate to its growing economic heft. Finally, for India, BRICS is a useful bridge between its rising status as a leading power and its erstwhile identity as the leader of the developing world.
How do the BRICS nations sit within the global economy?
The first decade of BRICS
BRICS' first decade saw each of the members laying down groundwork for cooperation, from identifying areas of convergence on political issues to improving economic ties. The level of engagement between its members, ranging from high-level summit and ministerial meetings to various working groups and conferences, has only deepened over that time.
Today there is a fair degree of cooperation on issues such as trade, infrastructure finance, urbanisation and climate change. Moreover, the five members have made modest progress in people-to-people connections. Platforms such as the BRICS Academic Forum and Business Council have proved to be useful in improving their understanding of each other’s industry, academia and government.
Undoubtedly, the two most notable achievements of the BRICS have been the institutionalization of the New Development Bank (NDB) and the Contingency Reserve Arrangement.
The importance of these institutions cannot be understated. For one thing, they mark a shift from political rhetoric to delivering concrete results, alleviating some of the skepticism surrounding the BRICS initiative. More importantly, they represent a partial fulfilment of BRICS' core raison d’être: to offer credible alternatives to the Atlantic system of global governance.
While such institutions are unlikely to ever replace the IMF or the World Bank, they represent a fundamentally different governance paradigm. By giving equal voting rights to its founding members and improving reliance on local currencies, the BRICS members are attempting to create a new, non-Bretton Woods template for the developing world to emulate.
The end of innocence
Despite achieving a moderate level of success over the last decade, two recent events have brought the divergence between the BRICS members into sharp focus.
The first is the recent military standoff between India and China on the Doklam plateau, which has effectively brought to an end the naive notion that a comfortable political relationship is always possible amongst the BRICS members. The second is China’s efforts at creating a ‘BRICS plus’ model, a thinly veiled attempt to co-opt nation states, which are integral to its Belt and Road Initiative, into a broader political arrangement.
Both of these events highlight how the foundational principles of BRICS - respect for sovereign equality and pluralism in global governance - are liable to be tested as the five member countries pursue their own national agendas.
However, instead of derailing the BRICS project, these developments are likely to inject a level of pragmatism into the initiative. While BRICS itself is unlikely to form the lynchpin of foreign policy for any of its members, it will continue to be an important instrument in their toolkit.
Essentially, the BRICS members are now likely to realise that the group itself is a ‘limited purpose partnership’ in which political barriers will always limit the partnership's full economic potential.
The next decade?
If BRICS is to remain relevant over the next decade, each of its members must make a realistic assessment of the initiative's opportunities and inherent limitations.
BRICS did well in its first decade to identify issues of common interests and to create platforms to address these issues. However, new political realities require the BRICS nations to recalibrate their approach and to recommit to their founding ethos.
For one, they must reaffirm their commitment to a multipolar world that allows for sovereign equality and democratic decision-making. Only by doing so can they address the asymmetry of power within the group and in global governance generally. Only this approach will strengthen multilateralism.
Second, they must build on the success of the NDB and invest in additional BRICS institutions. It will be useful for BRICS to develop an institutional research wing, along the lines of the OECD, which can offer solutions distinct from western-led knowledge paradigms and which is better suited to the developing world.
Third, they should consider a BRICS-led effort to meet their commitments under the Paris Agreement on climate change and the UN's sustainable development goals. This could include, for example, setting up a BRICS energy alliance and an energy policy institution. Similarly, the NDB in partnership with other development finance institutions could be a potent vehicle to finance progress towards the sustainable development goals amongst the BRICS members.
Fourth, the BRICS nations can also consider expanding the remit of their cooperation to address emerging areas of global governance such as outer space, the oceans and the internet.
Finally, the BRICS members must encourage direct interactions between their constituents. In the digital age, seamless conversations amongst people, business and academia can foster relationships, which are more likely to cement the future of this alliance than any government efforts.
For the first decade of its existence, the group was powered by a top-down approach with large investments of political capital. The second decade must ride on the energy and entrepreneurship of the citizens and communities that reside within the BRICS countries.
Abrazos,
PD1: No es tarde para invertir en emergentes:
Five Reasons Why It’s Not Too Late to Invest in Emerging Markets
So far in 2017, it’s been full speed ahead for emerging-markets equities, which have shown few signs of slowing down. The MSCI Emerging Markets Index has climbed almost 30% year to date,1 leaving some investors wondering whether it is now too late to gain exposure to this surging market segment.
In baseball terms, we believe the upward cycle of emerging markets (EM) is in roughly the third inning of a nine-inning game. In other words, we still see plenty of upside ahead and think it remains a good time to buy. Here are five reasons.
1. EM interest rates are still too high, especially compared to developed markets.
In the beginning of 2016, EM interest rates were very — and, more importantly, unnecessarily — high, even in the face of high inflation. The most extreme case was Brazil, where interest rates exceeded 14% when inflation was just 9%.2 A big reason for this was political noise, which has subsided somewhat as reforms have accelerated in many EM countries, such as India and Brazil.
However, as inflation remains benign, we still see significant room to lower rates across emerging markets, and this could spur higher equity returns.
2. The Chinese economy has stabilized.
So far, China’s economy has made a faster-than-expected shift from being manufacturing-based to more service-based. This is clearly a positive for China, which is a main driver of EM and global economic growth. Indeed, recent growth rates have been better than anticipated, supported by solid demand trends. China’s gross domestic product grew 6.9% in the first half, outpacing estimates.3
Furthermore, with the Chinese government aggressively shuttering excess capacity and deleveraging the country’s financial sector, the overall systemic risk has decreased significantly and should continue to fall in 2018. This has the effect of lowering the risk premium, which in turn elevates equity value for EM stocks.
3. Growth is rebounding more quickly in many emerging markets than in developed markets.
A very important reflection of that can be found in rising earnings expectations. We are seeing an increasing number of companies getting earnings upgrades — not only in Taiwan and South Korea (as has been typical) but in most parts of the world. This has been the second year of consistent earnings-per-share growth, and the last up-cycle lasted for five years, according to J.P. Morgan research.4
4. Valuations are compelling.
Overall, emerging-market equities have historically bottomed at 1.3 times price to book and peaked at 3 times price to book; they are now roughly at 1.7 times price to book.5 Based on this, we believe they still have room to run.
5. The U.S. dollar has been weakening.
This trend has provided the impetus for the past month’s momentum phase in the rally. Weakness in the dollar could continue if President Donald Trump fails to reach a pact with Congress on tax reform. If that happens, then we could witness more capital flowing into the EM asset class. Overall, EM currencies are undervalued against both the dollar as well as their historical norms.
Of course, there are risks to emerging-markets investing, including potentially greater volatility, currency fluctuations and political uncertainties. However, we believe an increasing long-term allocation to emerging markets is worth consideration, even though the rally is already under way. While we expect emerging markets to continue performing well, the easy money in this asset class has been made. As such, we anticipate that stock-picking ability will become even more critical, with a bias toward small- and mid-cap stocks from here on out.
1 MSCI, as of Aug. 31, 2017: https://www.msci.com/documents/10199/c0db0a48-01f2-4ba9-ad01-226fd5678111
2 Interest rates from Banco Central do Brasil (https://www.bcb.gov.br/Pec/Copom/Ingl/taxaSelic-i.asp) and inflation tracked by Focus Economics (https://www.focus-economics.com/countries/brazil/news/inflation/inflation-remains-at-over-12-year-high)
3 “China Economic Expansion Exceeds Estimates on Factory Rebound,” Bloomberg News, July 16, 2017. https://www.bloomberg.com/news/articles/2017-07-17/china-economic-expansion-exceeds-estimates-on-factory-rebound
4 Adrian Mowat, Rajiv Batra, Sanaya Tavaria, Joanne Cheung, Neelotpal Sahu, Anindita Gandhi, Aditya Srinath and Jason Steed, “Still early in the cycle: Perspectives and Portfolios,” J.P. Morgan, September 19, 2017.
5 Ajay Singh Kapur, CFA, Ritesh Samadhiya, CFA, and Aritra Baksi, “Two for Two: Asia/EM Equities likely to double in two years,” Bank of America Merrill Lynch, September 14, 2017.
PD2: Las lamentaciones y quejas no son positivas para nadie. Si te duele algo, es tu pequeña cruz que te ha llegado. A todos nos llega en esta vida algo de dolor, de molestias, de inconvenientes. Hay que aceptarlo con alegría, no poner caras largas, ni quejarse o lamentarse por lo que nos suceda.
