Time to Replace the 'R' in BRIC?

I have written some about developing markets and the difficulties that firms face navigating such markets (see So You Want to Do Business in a Developing Country? and The Birth of Plenty).

As a Corporate Strategy scholar, I am generally more interested in how foreign firms make decisions to enter developing markets and how they manage their operations in those markets than the economic development path of any of the individual economies. However, it goes without saying that economic development (or the lack thereof) impacts the calculus of firms considering doing business in foreign markets. I was therefore interested to read a recent Op Ed about Russia in the Globe and Mail written by my colleague Nouriel Roubini (see BRICkbats for the Russian Bear).

In that article, Roubini questions the soundness of the Russian economy:

One powerhouse in the BRIC group is just hanging in there. Hint: It isn’t Brazil, India or China

One piece of bubble wisdom that has escaped relatively unscathed…is the assumption that the BRIC countries – Brazil, Russia, India and China – will increasingly call the economic tune in years to come.

Yet, the economic crisis that began in 2008 exposed one of the four as an imposter.

The weakness of the Russian economy and its highly leveraged banks and corporations, in particular, which was masked in recent years by the windfall brought by spiking oil and gas prices, burst into full view as the global economy tumbled. Saddled with a rustbelt infrastructure, Russia further disqualifies itself with dysfunctional and revanchist politics and a demographic trend in near-terminal decline.

While Russia retains the world’s largest (if somewhat aging) arsenal of nuclear weapons, as well as a permanent seat with veto power on the UN Security Council, it is more sick than BRIC.

Roubini’s conclusion is that the Russian economy is facing an inexorable decline, and as a result, it no longer deserves to be considered in the same class with the other fast-growing, dynamic BIC economies. He suggests that it is time to find a replacement.

Disclosure: No positions

Comments

[Mad Hedge F...:]

viu Last January I was extremely positive about building long equity exposure in Russia, one of the two BRICKS that is a big energy exporter (See madhedgefundtrader.com...). I predicted that the RSX would deliver double the upside of the S&P 500. Well I lied. It actually came in at 3,5 times the US market performance. It even would have worked as a pairs trade, long Russia, short the US. This turned out to be an oil play on steroids, and a recovery in the ruble gave you a nice hockey stick effect in the dollar traded ETF. The bounce in the Russian currency stopped the country’s reserve outflow dead in its tracks, and enabled the Russian Central Bank to start shaving interest rates from the nosebleed territory of 13%. There is plenty of room for further cuts. Russia is not out of the woods yet. Some 30% of the $780 billion in corporate debt is due for rollover this year, the unemployment rate is at 9.5% and climbing, and ruble short term rates are at a sky high 15-20%. It also doesn’t help that they lock up oligarchs on bogus tax charges, and will expropriate foreign assets, as they did with Shell, at the drop of a hat. But none of my investors told me I could only do business with nice people who gave me a warm and fuzzy feeling. I had to bribe my late wife out of Moscow’s notorious Lubyanka prison once. But a rising oil price atones for all sins. Use this dip in crude to add to your positions, but watch out for the volatility.

Oct 22 07:47 PM

[Mistrofan:]

Russia never found its place next to BIC. And, although the Russian markets grew the most during the last 10 year (or maybe exactlly that's why) I am not a big fun of Russia not of other investments there. There are too many good countries out there to consider Russia. Maybe I like too much Dostoyevsky but I do NOT believe in Russia.

Oct 22 09:20 PM

[ozymandias888:]

How about BICK? Swap out Russia for Korea?

Oct 22 11:35 PM

[sergvch:]

Nonsence

Oct 23 02:28 AM

[Prune:]

"Nouriel Roubini is a professor of economics at New York University's Stern School of Business and chairman of RGE Monitor."

A professor of what? Where are the numbers in his Globe and Mail article to back up his words?

Oct 23 04:42 AM

[Erwan Mahe:]

Just use South Africa instead of Russia, and you will on top of that see a more latitudinal homogeneity :)

Oct 23 08:31 AM

[grh1212:]

It is premature and probably unsound to replace Russia in the BRIC honor roll now. I bought some RSX last month and it has already gained 34 pc. In fact i bought some in March of this year but panicked and sold in August with only a 63 pc gain rather than the 123 pc i could have had. Sure, i've lost on at least my share of trades but i certainly cannot complain about the R in BRIC. Yes, Russia is loaded with commodities including water even but they also have Vladimir Putin. If only we could have traded George W Bush for him. It is a great nation with not only copious natural resources but a large educated creative population , a proven ability to cope with horrendous historical challenges, an expansive geography, and a Judeo-Christian foundation.

Oct 23 07:03 PM

[huangthomas:]

Korea is a developed country and a member of OECD. I am still searching for replacement of Russia, such as Romania (yak!), Rwanda.......


On Oct 22 11:35 PM ozymandias888 wrote:

> How about BICK? Swap out Russia for Korea?

Oct 31 11:01 AM

[mbkelly75:]

I have never liked Russia as an investment. Any country that can, and has, shut down their stock market for over 1/3 of the year because someone in government got mad at one company is too risky for my money. Brazil, India and even China has some great investments - not Russia for me.

Nov 01 04:39 PM

[John Jackson:]

The morons crowing about the large gains that they have made in Russian investments fail to mention that these large gains involve large risks.

Nov 01 08:35 PM

[TiredOfRetards:]

Guess "yak!" is an appropriate interjection when one mistakenly gazes at your pimple ridden face. I'd agree with you that your comments are of greatest insight around here, but then we'd both be wrong.


On Oct 31 11:01 AM huangthomas wrote:

> Korea is a developed country and a member of OECD. I am still searching
> for replacement of Russia, such as Romania (yak!), Rwanda.......
>

Nov 05 10:05 PM