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BRICs: Something Is Wrong In The Promised Land

This is an excerpt from a feature story I wrote about corporate governance in BRIC countries. Read and giver your opinion: how are this four economies dealing with this issue?

Government intervention, high corruption levels and weak shareholder rights are complicating the development of the four main emerging markets in the world

by Bruna Maia

An acronym made a man famous. Jim O' Neill former chief economist from the Bank Goldman Sachs created, in 2004, the term BRIC. For him, Brazil, Russia, India and China had a unique potential to become the new world powers during the next decades. Some thought it was a wrong shot. He says that someone, doubting Brazilian capacity of growth, asked him if the B was only to make it easier to pronounce. But it turned out he was right. They became the golden apples of emerging markets, the darlings of investment world and huge receivers of foreign investment.

But now the spell is breaking. For years BRICs received more than 22% of all global investments dedicated to Greenfield projects (the ones started from the very first stage), for example, in 2012 this stake fell to 17,6% and there are no signs of a rebound. Investors are not so keen to these markets anymore. Mark McCombe, chairman at BlackRock, the biggest asset management firm in the world, said, by the beginning of last June, that money will now flow back to United States to take advantage of the economic recovery. Among his points to withdraw money from a dynamic market like China is the lack of corporate governance. Mr. McCombe was not the only one to notice it, though. Here and there, investors expose their disappointment with BRIC economies: Brazil does not grow enough (last year, the GDP increased by only 0,9%), Russia is trapped in a spiral of corruption, and India constantly gets lost inside its own bureaucracy. Understand why it is happening.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.