BRICs*: managing the growth engines of the future

On the tail of the second BRIC summit**, Allianz Global Investors analyses how the BRIC countries may continue to drive global economic recovery in 2010 and 2011.

Guido Stiel, Asian Equities expert within the award-winning Allianz RCM BRIC Equity management team, comments:

“Overall we see that the BRIC economies and markets are well on track. What is important now is how that is managed by the respective countries. We believe 2010 and 2011 will be a stock pickers market, whilst favouring certain themes within the four countries. For example we are currently positive on energy in Russia and are focusing on the healthcare sector in India where stocks are still cheap and show good growth rates. We believe India will also benefit from growing outsourcing potential from the developed countries as well as from the healthcare programme coming out of the US. We are still seeing a strong consumer in Brazil and China and have held our positions there in companies such as Magnit in Russia and China Construction Bank.
“Despite inflation still raising questions, particularly with regard to China and India, our view is that there are no fundamental concerns. For China, inflation expectations moving up are not significant, especially when you take a closer look at the Consumer Price Index (CPI) and where this inflation is coming from. Over a third has come from an increase in food prices caused by ‘blue ear disease‘, fatal to piglets, which led to a sharp increase in pork prices. The latest CPI numbers from March actually show that these figures have already begun to come down and therefore, for China our expectations for the year are that inflation figures will remain steady between 2 and 3 per cent. When looking at India, although inflation has begun to rise we are confident that the central banks are reacting positively, and have as a result increased the interest rate for the first time, a positive indicator for markets.
“The Chinese bubble or Chinese property bubble is the second myth which is gathering pace. When we look at the Chinese property market, most of the time we look at Beijing, Shanghai and maybe very recently Hainan Island. Here, in the luxury sector we have seen price increases. But unlike France or Great Britain, China is not only one or two cities. China is the whole country, the whole economy and in China alone you have 160 cities with a population of about 1 million people and when this is considered, we believe property prices around the country as a whole show no signs of a bubble.
“We continue to watch how the emerging market economies are effected by the slow economic recovery in the developed world. So far the numbers we have seen from the US are positive and we are expecting a gross domestic product (GDP) of around 4% which is a healthy figure for the BRIC economies. However figures coming from Europe are more likely to be subdued. It is clear that domestic demand from Brazil, Russia, China and India is likely to continue to grow, and short term concerns should not therefore be exaggerated.”

- ENDS -
 

* BRIC: Brazil, Russia, India and China

** Second BRIC summit took place on 16th April 2010 in Brazil

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