February 10th, 2011
05:33 AM GMT
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How much damage is the unrest in Egypt doing to the BRIC block of emerging markets?  Depends on who you talk to.

This week, there have been conflicting headlines on this subject with some analysts saying the impact is marginal and others warning us to be cautious.  David Spegel, Global Head of Emerging Markets Strategy for ING, puts it this way:  “The BRICs have suffered somewhat, with all equity indices – with the exception of Russia – posting negative returns year-to-date.”

Concerns about Egypt are weighing on sentiment, but inflation may be the bigger worry for the BRIC economies.  Global food prices have shocked the markets; however, Spegel expects the cyclical factors affecting food prices will ease after October for most emerging markets.

But he adds this caution:  “In other cases, inflation has been more broad-based, with wages, service costs and tight capacity constraints all suggesting overheating risks.”   If policy-makers fail to act aggressively, these factors could spell trouble for the BRICs.

Some action is already taking place. For example, Russia, the only BRIC without capital controls, is following China and relying on reserve requirements to drain cash from the economy and curb speculative inflows.  In addition, Brazil has been returning to capital controls to stem rallies in the currency.

“We remain constructive on Emerging Markets investments for 2011, with a less rosy view of risks in 2012, when the United States is expected to raise rates… Elections in the U.S., Mexico and political changes in China may result in greater market jitters.” says Spegel.

And of course, we’ll keep watching.

soundoff (2 Responses)
  1. Joaquim José Guilherme de Aragão

    In Brazil, the situation is as follows: The inflation has risen, due to the food prices. The Central Bank has also risen the interests, provoking an overflow of speculative capital and the correponding overvaluation of the Real. This phenomenon is damaging the exports of valuable goods, whereas the exportation of basic commodities is exploding. The new government has decided a substantial cut on costs and subsidies, in order to reduce the overheating of the economy. All these phenomena are not directly related with the Arabian crisis. But the country has good possibilities to overcome the food shortage, and also the rise of fuel prices may lead to a higher investment in sugar cane. Generally speaking, the situation is tense but under control, and the new Government has shown to be good responsivity to the problems.

    February 11, 2011 at 6:20 am |
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    October 21, 2011 at 11:21 am |

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