Wednesday, July 29, 2009

BRIC nations to provide us with the next bubble

Ever since the credit crunch crunched its way thru investor holdings, many have gone thru

(a) initial state of denial

(b) a renewed determination to avoid equities as an investment vehicle

(c) a reality check as interest rates touched decade lows

d) tentative search for alpha in other markets and initial tentative steps

(e) current deluge of funds flowing into the BRIC countries on hope that their economies will really motor over the next 2/3 years while they await return to normalcy in the US and western economies.

Result-taking China as the prime example? The Shanghai Indices and the proxy Hand Seng have all doubled in value since last September.

So how does that equate to a bubble scenario? Well, the rise is too sudden and when you think that China's main trading partners are US and Japan, is probably not supported by fundamentals. Finally, the monetary/fiscal side of the equation has weighed heavily in favour of a liquidity overhang in the economy.

The other BRIC nations have also seen first snap backs in equity market due to commodity price rise. Are the price rises sustainable?

2 comments:

Ssembonge said...

As long as BRIC are producers rather than consumers then we can expect proper growth. I think they have a lot of upside especially if you take into account a weak dollar.

MainaT said...

Nobody disputes the upside, but the rate of their stockmarket recoveries in the short-term looks all bubbly to me.