Global Divide

Crumbling BRICs

  • Why it matters

    Why it matters

    • Although the BRIC countries are still fueling global growth, their economic perfomance is far from equal.
  • Facts


    • China and India remain attractive investment options with strong growth predicted.
    • The Standard & Poor’s rating service recently downgraded Russia’s credit rating to junk level.
    • Emerging economic powers such as Mexico and South Korea are poised to push Russia and Brazil aside.
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BRICS Ikon Images
Two going up, two going down, as the BRICs separate. Source: Ikon Images



Fourteen years ago, Goldman Sachs Chief Economist Jim O’Neill strung together the first letters of the four fastest-growing global economies, creating a term that gained geopolitical significance. BRIC was the acronym for emerging nations out to catch up with the West: Brazil, Russia, India and China.

Since then, the once promising quartet has disintegrated into a pair of vastly different duets. China and India remain on course, but Brazil and Russia are plummeting downwards as the tectonics of economic power shift again.

Plunging oil prices, capricious currency valuation shifts and political fallout have rearranged the order of the globalized economy, allowing other nations to push ahead.

The Standard & Poor’s rating agency downgraded the Russian credit rating to junk level for the first time in a decade, symbolizing its decline. The ruble exchange rate has dropped by half while sanctions by the Western community have thrown the state backwards, exposing its structural weaknesses. Even Moscow admits 2015 could be worse than the crisis year of 2009.

As a “junk country,” serious repercussions await Russia, said Mohamed El-Erian, chief economic adviser at Munich-based Allianz. “This step will be followed by further downgrades of Russian banks and corporate bonds.”

Although Brazil is somewhat better off, the euphoria about its status in the world has evaporated. Inflation is running at almost seven percent while oil companies are under pressure. The state-owned company Petrobras, which represents a tenth of the industry, is being shaken by a corruption scandal.

The International Monetary Fund predicts 2 to 3 percent annual growth up to 2019 for Brazil and Russia. That’s not enough to keep pace with larger economic players.

“BRIC was always an economic concept, never an investment model.”

Jim O'Neill, Goldman Sachs Chief Economist

The next group of emerging economies, which have been developing for years, stand ready to replace the lackluster performers. Mexico and South Korea grew by four percent and Indonesia is expected to reach six percent, similar to the growth rates of China and India.

The BRIC countries are no longer equally lucrative for investors. Chinese and Indian stocks together are worth far more than €5.28 trillion, or $6 trillion, while Russian and Brazilian stocks manage only €1 trillion. Since 2014, Chinese stocks, computed in dollars, gained more than 50 percent in value while Indian stocks rose 40 percent. In contrast, Russian stocks have lost almost half their value.

Despite the differences in the current status of the original BRIC countries, Mr. O’Neill defends his neologism. “BRIC was always an economic concept, never an investment model,” he told Handelsblatt, though he added, “I am maybe tempted to reduce the term to IC.”

Mr. O’Neill is convinced that BRIC was a meaningful economic concept, despite the criticism.

“It was a good marketing concept, but as an investment strategy, it was less successful,” said Devan Kaloo, head of Global Emerging Markets at Aberdeen Asset Management.

Before the financial crisis of 2007, it all seemed so simple: China was the workbench, India the think tank, and Russia and Brazil sat on a wealth of natural resources. All that has changed.

“Although the BRIC countries are still the engine of global growth, the differences have become more significant today,” said Sean Taylor, head of emerging markets equities at Deutsche Bank’s Asset & Wealth Management division in London.

“We continue to believe in China and India.”

Sean Taylor, Deutsche Bank Asset & Wealth Management, London.

The numbers speak for themselves. China’s economy has grown by almost 50 percent since 2010, and India’s by 30 percent, while Russia saw growth of only 10 percent and Brazil 8 percent, well below other major emerging economies like Mexico, Indonesia, Nigeria or Turkey, collectively known as MINT.

Raw commodities play a key role, a factor that has become more evident since the price of oil began to disintegrate. Low prices have torn a hole in the budgets of Russia and Brazil and put large oil producing companies under pressure. Investors are avoiding both countries at the moment, though Mr. O’Neill is an exception. He sees value in cheap Russian stocks and shrugs off S&P’s downgrade.

Most experts are focusing on the stock market frontrunners of last year. “We continue to believe in China and India,” said Deutsche Bank’s Mr. Taylor, who expects the problem economies to experience further economic contractions in 2015 while predicting double-digit gains from Chinese and Indian stocks.

Both countries are profiting by adopting Western standards. “The governments want to reform their economies, as well as give them a boost,” Mr. Taylor added.

Indian Prime Minister Narendra Modi has eased the way for foreign investment and is working to lower the budget deficit. Meanwhile, Chinese President Xi Jinping plans to open domestic markets more widely to investors and seeks better networking between the stock exchanges in Shanghai and Hong Kong.

Perhaps most optimistic about the performances of China and India is Jonathan Garner, managing director and head of global emerging market strategy at the investment banking firm Morgan Stanley. He has declared himself an “ultra bull” on China and predicts shares there could double in the next 18 months.


Ingo Narat and Daniel Schäfer are editors on the Handelsblatt finance desk.  To contact the authors:,


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