by Marc Chandler

Take 3: BRIC or CRIB?

Brazil, Russia, India and China are now collectively known as the BRIC countries. Besides the Goldman Sachs invented moniker, these countries have very little in common except for the fact that they believe, to seemingly varying degrees of intensity, that they deserve greater influence in the conduct of world affairs than they currently have.

One of the most important reasons why the BRICs do not have the economic clout that they would like is frankly they don’t deserve it. Goldman Sachs had a story (and more) to sell with its BRICs concept, but those same letters spell a real word, CRIB. The point is that the countries, outside of China, are not among the largest.

According to Bloomberg data, at the end of last year, China was the fourth largest economy ($3.2 trillion), behind the US, Japan, and Germany. With a GDP of $1.3 trillion in 2008, Brazil was the 10th largest economy, though it is roughly half the size of France, which is the 6th largest economy. Russia and India were neck-and-neck for 11th and 12th places with each having produced about $1.2 trillion of goods and services last year. Spain’s economy is nearly 20% bigger than Russia’s and India’s, and it is the 8th largest economy.

Together the BRICs account for a little more than 12% of the world’s GDP, and China alone accounts for half of that. The BRICs appear to be under-presented in the International Monetary Fund. As we have seen they account for about 12% of the world economy and yet have a combined quota (vote) of 9.82%. Yet the representation is not as straight-forward as that. Consider that the US accounts for a quarter of the world’s economy and yet the US has a 16.77% weighted vote at the IMF.

The BRICs are also small in terms of the depth of the capital markets. Together, according to Bloomberg data, they account for a little more than 6% of the world equity capitalization (MSCI World Index). What equities that are truly tradable are very limited and concentrated in a few names. Often the markets lack the kind of transparency that many Western investors are familiar with, even given the financial crisis. The currency markets are also highly restricted, even the Chinese currency, which some pretend can replace the dollar in the coming years.

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Take 1:  Near Term Dollar Weakness

Take 2:  Emerging Markets

Marc Chandler, is Chief of Currency Strategy at Brown Brothers Harriman.  He is author of Making Sense of the Dollar: Exposing Dangerous Myths about Trade and Foreign Exchange.   He appears frequently on television and writes for a number of publications on a regular basis.