This is the first notable diversion in four years, from the original path of glory for some of these emerging markets- BRIC acronym was coined for Brazil, Russia, India and China in order to signify their potential as future business powerhouses of the globe. Reasons claimed (for the diversion) being a-new-found-evidence of current account deficits & structural weakness as well as cooling demand from China.
Further, financial figures depict that, Brazil has suffered a slump in the ‘real’ after relying on credit-led consumption, which failed to boost productivity and returned the country’s current account to a deficit of about 3 % of its GDP (Gross domestic product).
Indonesia has been hampered by inflation close to a four-year high and a record current-account shortfall. India has been held back by cooling growth, elevated inflation, inadequate roads & other infrastructure and distorted regulations. Standard & Poor in September reiterated it may downgrade the country’s credit rating due to risks encompassing budget and current-account imbalances.
Turkey and South Africa now have current-account gaps bigger than 6 % of GDP. Russia is hobbled by weaker global demand for its exports of oil, natural gas and metals and is growing at the slowest pace since 2009.
The worst may not be over for the BIITS, if the past is any guide. The Brazilian ‘real’ had lost 51 % in 2001-02, the Indonesian ‘rupiah’ had plunged 86 % in 1997-98 and India’s ‘rupee’ had fallen 42 % during 1990-92. In 2000-01, the Turkish ‘lira’ had declined 68 % and the South African ‘rand’ had depreciated 52 %.
The theme of diversion is gaining further ground as the growth in emerging and developing countries has been cited to be the weakest since 2009. Since the start of May - the Indonesian ‘rupiah’ has fallen 11 % against the dollar and the Indian ‘rupee’ declined 12 %, the Turkish ‘lira’ dropped 9 % and Brazilian ‘real’ lost 8 %. By contrast, the Mexican ‘peso’ has lost 5 %, the South Korean ‘won’ has risen 3.8 % and the Czech ‘koruna’ climbed 3.5 %.
Financial reports proclaim that many emerging markets have used up their reserves fighting global economic crisis of 2008. Some state that while Mexico is “doing the right thing”, Brazil is “back to its old habits” and Turkey “denies it has a problem”.
The broad financial picture today shows that, the Mexico story is attractive and more compelling than some of the others in the region. Along with, Mexico, the Czech Republic and South Korea are among the still-attractive countries because they are less reliant on foreign finance, have managed to contain inflation and have reasonably strengthened their economies While, BIITS may be classified as the more-troubled emerging markets.
All-in-all, I would say that, it’s time for corporates planning expansions into different geographies to clearly fragment emerging markets into- good EMs and bad EMs and build expansions strategies ‘customized’ to each EM. Again ‘one-size-fits-all” doesn’t work here…
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