The Independent Market Observer

Cracks in the BRIC Wall

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Aug 20, 2012 12:39:41 PM

and tagged Yesterday's News

Leave a comment

The meta-story over the weekend was the conviction of the Russian punk band Pussy Riot on charges of hooliganism. They were sentenced to two years. This made the front page above the fold in both the Financial Times (FT), with a big picture and the headline “Outcry over Pussy Riot verdict,” and the Wall Street Journal (WSJ), with “Russian Band Found Guilty.” The FT also followed up on Monday with “Pussy Riot sentences open perilous split in Russian society” (p. 2). The conviction represents a blow against Russia’s reputation as a state ruled by law and is the latest step the government has taken against the opposition.

On Monday, the meta-story was China, hit for both politics and economics. Political issues led the front pages of the New York Times (NYT) and the WSJ, with “Chinese Defer Death Penalty in Lurid Killing” and “Sentencing in China Stokes Politics,” respectively. The FT also covered the subject in “Murder trial verdict looms for disgraced Bo’s wife” (p. 3). These stories show the verdict as an attempt to close down a potentially embarrassing case while minimizing damage to the country’s reputation and exposure during a leadership transition. External politics also received coverage in “Anti-Japan protests flare across China as crisis deepens over disputed islands” (FT,p. 1) and “The South China Sea’s Gathering Storm” (WSJ,p. A11); this is a brewing conflict I have mentioned repeatedly over the past couple of weeks.

Economic issues in China were front-page news as well, with “Balancing the Give and Take in GM’s Chinese Partnership” (WSJ) and “Call to limit Chinese stake in UK nuclear deal” (FT). These articles focus on the problems determining the different roles between partners in two high-profile deals with Western countries. The FT also had a larger-focus article on the Chinese economy, “Experts contemplate harder landing for China’s economy” (p. 3).

Clearly the story of the BRICs has changed, with the general perception of political stability and economic growth morphing into something at least more nuanced. I have been a long-term China skeptic, and I think we are getting close to a decision point on whether the country will be able to transition from an export-led growth model to one driven by domestic demand. This will actually be the economic story of the decade, so pay attention. I still have my doubts, and I am getting more company. Related BRIC stories over the past week or so include a Brazilian economic stimulus program—stimulus?—and the mega blackout and growing reports of corruption in India.

In Europe, the situation continued to be schizophrenic. Over the weekend, the FT had “Spain’s Robin Hood mayor sets off on a march to occupy supermarkets” on the front page and “Hollande’s tough approach sees good will evaporate” on page 2. Which side are the Socialists on? Monday brought no better news, with the NYT running “Tension Over Aid to Greece Could Unsettle Markets” (p. B1) and the FT pairing “France refuses to waver on deficit” next to “Merkel and Hollande to grapple with Greece” (p. 2). Not front-page news again, but not that far away either (yet).

Have a great day!


Subscribe via Email

Crash-Test Investing

Hot Topics



New Call-to-action

Conversations

Archives

see all

Subscribe


Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®