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BRIC-layerS

Published in Automated Trader Magazine Issue 36 Spring 2015

It's been almost 15 years since the original BRIC grouping was minted, referring to Brazil, Russia, India and China, with South Africa getting tacked on in 2010. Much has changed in the world since then, and though the regions push forward with cooperative arrangements among themselves, there is a big question mark over the relevance of these emerging markets as a group. Automated Trader tries to stitch together the macro and micro realities.

Philippe Carré, Global Head of Connectivity, Capital Markets, SunGard

When Jim O'Neill, former chief economist for Goldman Sachs, first decided to group seemingly disparate countries, coining the term "BRIC", he unleashed an enviable example of out-of-the-box theorising that actually ended up having practical outcomes. There are now BRICS summits, cross-exchange listings of indexes and a joint development bank, among other initiatives.

How successful these have been is a matter of debate, however. Economic growth in some of the BRICS has disappointed in the past few years, which has spurred a major rethink on the whole concept.

That rethink can miss the point, said O'Neill in an email. The BRIC concept was never based on the countries' economies growing strongly every year and China is not disappointing relative to the original assumptions, while India is accelerating. It is really just Brazil and Russia that are flagging, he noted.

By 2016, the combined size of the BRIC countries will be as big as the US, bigger than the EU and is underpinned by a development bank, he added. In the long-term, they are set to outpace the G7 nations (Canada, France, Germany, Italy, Japan, the UK and the US).

"I know it has become less fashionable and some people say it is less useful, but obviously I don't agree," said O'Neill. "If you assume the reason why the concept became so popular was on the premise that they're headed towards being bigger than the G7 by 2037, which is what we originally said, this is still quite feasible."

As a late joiner, South Africa was added on due to its developed commodity sector and advanced financial markets, O'Neill said, and though he congratulates the move, he remains critical of the country's inclusion on economic terms.

Economic or politics?

It's exactly these kinds of departures from the original argument that has commentators saying the BRICS are actually a political concept.

What Jim O'Neill tapped into, said Philippe Carré, SunGard's global head of connectivity for the Capital Markets unit, is that the polarity of the world was changing and investors needed to look past the usual G7 economies.

"The BRICS are very large countries with large populations, a growing middle class with aspirations," he said. "The concept invented at the particular time to force people to look slightly outside of the box became so strong that those countries started to get together, recognising that they could be a counterweight to the usual suspects," he said.

At the same time, it's not often that a Brazilian hedge fund wants to trade Russia, or that China banks want to go straight to trading Brazil. Cooperative BRICS initiatives may show ongoing commitment, but how successful are they really?

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