Inflation has been far from our minds when following the BRIC economies on World Business today. However, the sell-off in emerging market equities that followed Chinese inflation data last month is a reminder that inflation remains a risk in the world’s hottest emerging markets known as BRIC.
China has announced a two year high in its year-on-year increase in consumer prices, at 4.4 percent. India’s inflation is running at 8.6 percent, 7.5 percent in Russia, and 5.2 percent in Brazil. Brazil’s consumer prices rose 5.5 percent in November, the biggest jump in 20 months, and that’s with the central bank’s overnight lending rate at 10.75 percent, up from 8.75 percent.
Here’s the concern: If the BRIC economies try to control rising inflation by hiking rates and slowing growth, who will carry the economic growth banner for the rest of the world? Will these economies sputter?
In addition, it is often the poor who suffer with inflation in emerging markets because they spend a large portion of their income on food. Food inflation is high in the BRIC block, for example, 10.1 percent in China, and 15.7 percent in India.
Brazil, Thailand, and Taiwan are among countries that are trying to tame inflation through capital controls, and economists say there is increasing pressure for more measures.
Russia may be a notable exception. It’s struggling compared with the other BRICs, so much so, that social media is awash with suggestions that Indonesia or South Africa replace the “R” in the acronym.
So we’d have BIIC?
Not so fast says David Spegel, global head of Emerging Markets with ING. “Russia is the only major energy exporter among the BRICs,” he says. It’s a large equity market, “and Russia has the largest market for external bonds (US$211bn)… so for financial markets it would be difficult to extract.”
Spegel says don’t expect a re-branding of BRIC any time soon. And let’s keep our eyes on inflation and capital controls in the block.
(CNN) – Emerging market bonds are telling an interesting story about investing right now.
According to data from ING, EM bonds are in demand. David Spegel, ING’s global head of Emerging Markets Strategy says, “Investors are increasing their risk exposure, first by moving into EM corporate bonds from EM sovereigns … and by buying bonds that are rated further down the credit ratings spectrum.”
The best-performing emerging market bonds are in Belize, up 67 percent; Ukraine, up 32 percent; Argentina, up 24 percent; Uruguay up 22 percent; and Iraq, up 19 percent.
That is not bad compared with the year to date return of the S & P, which is about 4.25 percent.
Emerging market equities, according to ING, have returned 11.94 percent year to date. EM bonds have outperformed EM equities by more than 3 percentage points.
Even the worst performing year-to-date emerging market bonds don't look too bad compared with developed markets: Ecuador is up 2 percent, Serbia is up 5 percent, and China is up 7 percent.
So, what does it mean? Investors appear to be banking on growth in developing nations like the BRIC countries - Brazil, Russia, India and China - we follow closely on World Business today.
That’s because developing nations don't have the problems that developed markets have, such as heavy debt. Many BRIC nations export commodities and the price of commodities is on the rise. Developing nations also have populations that are young and growing.
In addition, the International Monetary Fund projects developing nations will grow 6.4 percent next year, while developed economies will expand just 2.2 percent.
(CNN) -- An expert in organizational psychology and the nature of great leaders is studying the reports from the Chilean mine on the role shift supervisor Luis Urzua played in keeping 33 men alive, and under control.
Bob Sutton, author of “Good Boss/Bad Boss” and Stanford professor, says “I’m quite obsessed with the feel-good stories of the miners, and I am especially interested in the competent and compassionate leadership of Luis Urzua.”
Urzua was the final miner to reach the surface. Standing before Chilean President Sebastien Pinera, Urzua said: "A 70-day shift is a very long shift. The first days were very difficult." Mr. Pinera responded: "You acted like a good boss. I receive your shift." Such was the symbolic hand-over of responsibility.
Sutton has some fascinating insights into what Urzua did, that other bosses ought to do during times of organizational strain. Sutton challenges the notion that cutthroat leadership is the only way to make it in today’s business world. Prediction, understanding, control, and compassion are just a few of his ingredients for leadership success during scary times. A business leadership trainer who I worked with years ago once told me, “It’s not about perfection, it’s about connection,” which echoes Professor Sutton’s thesis that both competency and humanity are necessary components of great leadership.
Have a listen to my interview with Professor Sutton which aired on World Business Today. And check-out Sutton’s blog at: http://bobsutton.typepad.com/. If you are a leader, or are being led, you’ll find a lot of food for thought.
(CNN) – Intel earnings are kicking off what some analysts call tech earnings season. Many look to Intel as an indicator of the health of the broader tech sector.
The company beat expectations coming in with $3 billion in Q-3 profit, or 52 cents a share. That’s compared with 1.9 billion or 33 cents a share in the same quarter last year.
“It was an all-time record in terms of revenue – our first quarter ever above $11 billion,” Intel CFO Stacy Smith told me.
Intel’s stock rose in after-hours trading. The company says PC demand is staying strong despite declines in U.S. consumer demand.
Some analysts say Intel has been left out in the iPad craze, focusing on cheap PCs known as netbooks rather than tablet style technology and smartphones.
Can Intel create excitement about its stock without a foothold in the tablet market? How important is China’s market?
Lexington, Kentucky (CNN) – I recently went back to my equestrian roots and covered the World Equestrian Games, held in Kentucky, the first time ever outside of Europe.
Now that the 16-day event has wrapped up, there is a lot of tallying going on, and questioning whether the economic impact will be significant or not. The CEO of the games, Jamie Link, tells me that though ticket sales were sluggish at first, organizers are pleased with the end result.
A previous economic impact study suggested there would be about $167 million in benefit to the Lexington Kentucky area, though that will be difficult to quantify. Though challenging to mount these games on the heels of a brutal recession, Link says, “This will put Kentucky on the international map.”
Now, if you’re not a horse lover, let me put it this way: Kentucky’s horse park is like Disneyland, or some sort of equine nirvana for those who love the sport. So to have a competition that’s on par with the Olympics for equestrians at the Kentucky Horse Park—well—you get the picture. All manner of horse lover was there, from the extremely well-heeled so typical of this elite sport, to families, to horse lovers of modest means.
Pat Parelli, who is known around the world for what he calls a “natural” approach to equine training, spent the entire 16 days there to promote his business. He demonstrated his way of treating problem horses with voice commands and body language that builds rapport between horse and rider. He now has training centers in the United States, the U.K., and in Australia. I’d been in Kentucky as a teenager to train for competitions, but had not been on a horse in more than twelve years. Pat Parelli put me on board Aspen and taught me a thing or two that’s new in this amazing sport. Check out the video!
The cross-country course was awe-inspiring. It was a beautiful sequence of almost 40 jumps over rough terrain, including a miniature version of the Kentucky log house where U.S. President Abraham Lincoln was born. And yes, the horses had to jump that one, fence number 20, which caused a lot of problems for the 3-Day Eventers who faced the cross-country course on the second day of competition. There is an ongoing debate about the safety of cross-country courses, as elite riders and course designers push themselves ever farther to challenge the athletes and wow the crowds.
After winning the team gold and the individual silver medals in the three-day event, British rider William Fox-Pitt walked part of the course with me, showing me some of the toughest spots. He also weighed in-on the debate about whether the courses are just too dangerous.
If you missed our extensive coverage of the World Equestrian Games on World Business today, check out the video links, and come ride with us!
Muhammad Yunus is a man on a mission. He's been a banker, an economist, and a Nobel Peace Prize winner. He developed microcredit and microfinance, giving loans to entrepreneurs who are just too poor to be considered for bank financing.
You may have heard about his Grameen Bank. Its founding was what helped him to jointly win the 2006 Nobel Prize.
His most recent book is about what he calls "social business." These are small-scale enterprises run not for profit, but to make an impact. They are different from charities, because they do make a profit; however, that is not their primary purpose. They are meant to be self-sustaining, tax paying, revenue generating enterprises that help fix a social problem.
While on his book tour, I had the chance to talk to him at length about the book, and the role of social business in the global economy.
He is passionate about young people. When he speaks to them at universities he says he finds passion that you can sense he equates with his own. "Young people are not graduating with their job offers in their hands any more. They want to make a difference and they see that making money is not what is important. They want to change the world."
Yunus is sharp as a tack, hopeful, and brimming with enthusiasm for his work. He bristles at any suggestion that social business is too small to make an impact, that it's anti-capitalist, or that it just can't work if owners can't be motivated to take profits from the business. He believes in changing minds.
An early venture in social business involved making fortified yogurt for areas in Bangladesh where most children are malnourished. This small program struggled to succeed in a country without refrigeration and infrastructure to distribute the yogurt. Women were hired to sell the tubs door-to-door, but cultural barriers got in the way. Wheat and milk prices shot up in the U.S., and that raised the price-point of the yogurt, hitting sales hard.
It took time, but the venture is now considered a small success, in a big way.
You can read more about this project and others in his book: "Building Social Business: The New Kind of Capitalism That Serves Humanity's Most Pressing Needs."
And check out our interview. It will make your day.
Every year, companies spend billions of dollars on good causes. But in this challenging economy, corporate giving is taking on a new level of importance.
"Cause Marketing" is a term coined in the 1980s. But today, it's becoming a popular method for companies to get through tough times, and build their brands.
We are accustomed to big companies like Pepsi and Nike getting behind global causes, but smaller businesses can get in on the action as well.
I profiled a small company, Guy Harvey Inc., that reports record revenues in 2008/2009, at the height of the recession, and management credits Cause Marketing with the success.
A pioneer in this field, Harvey says the cause started as an authentic desire to save the world’s oceans, and became a business strategy much later on.
"Sometimes you need to have money to do the good," says Harvey, "and I feel good to be in this position now, to have the influence to really make a difference."
Carol Cone, an expert on marketing and the author of "Breakthrough Nonprofit Branding" says companies spent more than $9 billion in 2001 on charitable causes. The challenge, she says, his ensuring they meet their business objectives at the same time.
According to Cone, recent surveys show six out of 10 consumers say they are more loyal to a company that backs a cause. Social media is an important factor in the success of cause marketing. Cone says, "By word of mouth and social media, consumers can find out what a company truly stands for. Consumers want to be in control, they want to feel empowered to be good, so this really resonates."
The 2010 World Cup is as much a clash of logos, as it is the world’s best soccer players. Adidas and Nike are in a battle for consumer attention, and money.
Without a doubt, Adidas is the grand-daddy of soccer. For 40 years, the German company has been the main sponsor behind European football.
But at this year's world cup, there's someone in the other corner. Nike, who analysts say is the 800-pound American gorilla of sports marketing.
Both companies want the attention of the billions of people watching the global championships. Both companies want to dominate the estimated $10.9 billion football industry.
Nike’s approach has always been to use celebrity to sell. It has a corporate history of sponsoring the biggest names in sports, however the World Cup is different. Rival Adidas is already the official sponsor, so how will Nike capitalize?
Sports analysts like Matt Powell say Nike is a master of guerilla, or ambush, marketing, and that's partly how it's managed to elbow its way in to the football market with surprising speed.
“They started with it at the Los Angeles Olympics which were sponsored by converse at the time,” Powell told me in a recent interview. “Nike took over allsorts of buildings and put their banners on them and that really started Nike into being a very good guerilla marketer. Nike always finds a clever way to get its name out."
It's the kind of confidence that Nike exudes. Hannah Jones, Nike’s Vice President of Sustainable Business, told me on a recent visit to the company headquarters in Oregon: “It's never challenged us in the past. We love our athletes. We love our teams. We're all about celebrating the game. We're all about celebrating that young football crazy obsessed teenager and that is who you see turning up.”
But it's ditto for Adidas, which is certainly not a company heading for the sidelines any time soon. Before the competition began, company CEO Herbert Hainer told CNN: “We are quite excited for this event. And we have set aggressive targets. We want to achieve new record sales in football. In 2008 we had the best result with 1.3 billion euro and we are absolutely confident we will over-achieve this number."
Soccer is not nearly as big in the U.S .as football is in Europe, and that’s a challenge for Nike. At this year's World cup Nike sponsors nine teams, its most ever, including the U.S., England, Portugal and Holland.
And all its players are sporting uniforms made from recycled plastic bottles gathered in Asia. It’s just one example of how Nike plans to woo the environmentally conscious football fan.
At a recent unveiling of the new football kits, Nike’s Global Football Creative Director Phil Dickinson told me, “I'm super-biased on this but it's the world's best sport and we put the world's best athletes in a sustainable uniform. It’s inspirational and it’s high on the agenda for Nike, a sustainable business where eventually everything will be reused and recycled.”
So there’s something else to watch at the World Cup. The battle off the field is looking just as interesting as the one on it.
America's biggest banks are rolling in dough again. The U.S. President is going straight to Wall Street to pitch tough financial reforms to avoid future financial meltdowns. The regulatory body, the S.E.C., is pursuing civil fraud charges against Goldman Sachs. And some people are crying conspiracy. In a rare statement, the head of the S.E.C. said the watchdog does not "coordinate" its "enforcement actions with the White House, Congress or political committees," re-asserting its independence in the face of criticism."
Extraordinary times continue in the financial world. But what on earth is going on? If you believe one analyst we featured on World Business Today, this moment in the global financial crisis may be an important one. Richard Bove, Financial Analyst for Rochdale Securities, fears this could be the start of a pursuit of major financial institutions that could erode confidence in the U.S. financial system.
Bove calls the reaction to the banking crisis in 2008 "hysteria" and says the Goldman transactions may be complex, possibly unsavory, but they are not fraudulent.
"On one side you have a sophisticated investor who wants to short a bunch of mortgages. On the other side, you have two sophisticated investors who've gone through all these mortgages and decided which ones they want to keep, and which ones they don't want to keep. And they made the decision to buy them. The government is not suing the guy who wants to short, or the guy who bought the mortgages. The government is going after the middleman. What's the logic in that?"
Media reports are questioning the strength of the SEC's case. The agency says it has appropriate evidence that will be presented in court, at the appropriate time.
We should not be pre-trying this case in the media. But the questions the case raises are important ones and the voices on it, divergent.
Did somebody hear Richard Bove defend Goldman Sachs as good for society? Yes, you did. And that derivatives, the exotic instruments everyone is so upset about here, are good for the economy because they help drive down risk? Yes, you did.
It's a tough case to make in this climate, but Bove says Goldman should be defending itself as a business that does "societal good," because it "lowers taxes, and adds jobs and business opportunities." However, because of the financial crisis and these charges it is viewed simply as a bunch of greedy bankers who do fraudulent things.
"The U.S. has to raise 1.3 trillion dollars this year to cover the deficit. It has to roll over 3 trillion dollars in existing debt. Who is going to do that? Are we going to have a bunch of small community banks to set up desks in front of their branches and sell savings bonds at 25 dollars a pop? Or do we need a very sophisticated company that can access capital markets all over the globe to raise that money? And if it doesn't raise that money what happens to taxes in the U.S. Somebody has to make that money."
Of course, the courts will decide whether Goldman did anything fraudulent.
Bove is firmly in the camp of those who believe the government's case is weak, but he's quick to add: "I would never defend Goldman Sachs. I would not defend their ethics. I just think in this particular instance they were not guilty of any crime."
On World Business Today, we often turn our attention to the BRIC nations: Brazil, Russia, India, and China to monitor, explain and sometimes marvel at their emergence on the world economic stage. Some experts predict that these economies could be among the four most dominant over the next thirty, to forty years, and we just might have to expand that acronym to include other emerging economies.
Let's rewind a bit here to the end of 2009. On WBT, we reported the Dow Jones list of the best performing stock markets that year. Sri Lanka was on-top in 2009, with stocks jumping more than 150 percent in dollar terms. Not far behind, was Indonesia. And stocks in Brazil more than doubled.
So, what about 2010? Check this blogspot regularly for analysis on emerging markets, as well as the BRIC nations we are keeping a close eye on, so you don't have to find it yourself.
2010 has begun with concern among some analysts that emerging market stocks are due for a correction. Some analysts have predicted a 10-15 percent drop this year as global growth slows. However, other analysts say that with the turmoil spreading from Greece to other advanced economies, one should pay less attention to past definitions of a country's creditworthiness, and look instead at which countries have strong balance sheets and which have weak ones. The old rules, the old assumptions, have changed. Emerging markets in the 1990s lurched from crisis to crisis under too much leverage and too much debt. But now, it's developed countries that seem the most stretched.
So if emerging markets are on your radar in 2010, what should you watch for? David Spegel, head of global emerging market research with ING says, "The best performers so far this year have mostly been among the dogs of 2009." He says that includes Venezuela, up 12.2%, Belize, up 17.9%, and Jamaica, up 31%. "These have benefited from the perception that default risks are in decline as access to credit seems less problematic. However, for Jamaica, heavy repayment risks remain, so we could see a reversal of fortunes there," Spegel warns. In broader terms, Spegel says, "There remain lingering concerns that while a serious double dip may be off the table, the world may stagger into an extended period of low growth," which would hamper recovery in global financial markets.
Zeina Abdel Latif who is ING Brazil's chief economist, says the economy there is still benefiting from disciplined fiscal policy. "The economy does not appear overheated," she says, "inflation is anchored and the increase in the current account deficit does not raise concerns, especially taking into account the attractiveness of foreign direct investments." She says the Brazilian stock market continues to outperform over the past several months, however Abdel Latif believes that the market will not surpass its performance from last year.
Also on our watch list: Pakistan and Ukraine with markets up 10.75% and 16.92% respectively, according to ING.
About Business 360
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