In Part One, we explored just how quickly Brazil’s, Russia’s and India’s currencies are weakening. Now, BRIC economies are losing money at alarming rates.
Investors withdrew $6.3 billion from Brazil’s stocks and bonds in May, the most since at least 2010, while Russian capital outflows reached a net $46.5 billion in the first five months of the year, including $5.8 billion in May.
Meanwhile, Western firms such as P&G, Citibank and Coca-Cola with a larger exposure to emerging markets are rapidly downgrading earnings. Citi may take a $3-5 billion hit this quarter due to foreign exchange losses, according to sources quoted in a Bloomberg article.
The BRIC economies have become a major force in the global market, not just in commodities consumption, but in the sheer volume of transactions and in their foreign currency holdings.
China has become the second-largest economy while Brazil, India and Russia are among the 11 biggest worldwide. The article states their combined gross domestic product rose to $13.3 trillion last year from $2.8 trillion in 2002 as their share of the global economy increased to 19 percent from 8 percent, according to IMF data.
Together, they control $4.4 trillion in foreign-exchange reserves, about 40 percent of the total; foreign reserves that are already starting to be marshaled to break the fall. Russia has started selling dollars to slow the fall of the ruble, a trend that may continue as the flow of funds out the country accelerates.
Weaker currencies, of course, can have some positives — more competitive export prices being the main one. If, as expected, this trend continues, expect to see more Brazilian, Russian, Indian and Chinese steel, aluminum and other metals being offered in the US market this year.
With costs in local currencies and sales in dollars, BRIC producers will be able to progressively undercut local domestic producers here aided by nothing more than a more favorable exchange rate.