Europe Economy

BRICs No Safe Haven From Western Doom: Study


Investors turning to the still-expanding BRIC economies of Brazil, Russia, India and China should be aware that these countries remain exposed to risks — including internal conflict and the impact of climate change — which could undermine their potential for attractive returns, a new report by global analysts Maplecroft warned on Monday.

Traders work in the ten-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago, Illinois.
Daniel Acker | Bloomberg | Getty Images

The BRICs, which saw enormous growth over the past years, continue to see their economies expanding at a time when developed economies are contracting.

“With present hopes for mitigating the global impact of poor economic growth forecasts in key Western economies resting with the BRICs economies, and in particular China, investors and business operating in these geographies need to be aware of their limited resilience to global risks,” Maplecroft said in its Global Risks 2012 report published on Monday.

The International Monetary Fund cut its forecast for 2012 global growth in January, expressing concern that the European debt crisis would send advanced economies back into recession.

Meanwhile, growth in developing economies would slow from a high pace, it said.

Maplecroft said that the economies of Brazil, Russia, India and China were increasingly important for global growth as many of the Western economies faltered in the face of debt crises and stagnation.

“However, they each remain exposed to global risks which could undermine their investment potential.

Investors need to understand these risks to best exploit business opportunities in these countries,” the report said.

Maplecroft assessed the strategic risks that impact the business, as well as the ability of national institutions to mitigate them.

In its report, it looked at five key global risks: macroeconomics; security risk; resource security; climate change; and pandemics.

India and Russia are “particularly exposed to the destabilizing influence of internal insurgencies,” Maplecroft said.

India also faces resource insecurity, Maplcroft said, which “at its most extreme…could completely cripple economies, cause widespread famine and lead to violent conflict within and between states." Meanwhile Russia and China could suffer from the effects of global climate change.

“For example, the high exposure of the Chinese economy to multiple hazards, such as the exposure of the densely populated Guangzhou to typhoons, or the economic exposure adjacent to the Yangtze River, may disrupt supply chains that extend into the region with a significant impact on the global economy,” the report said.

“Such vulnerabilities pose the potential for sudden shocks that could potentially undermine the development of these countries and those closely integrated with them,” it added.

High exposure to the impacts of climate change could also have “dramatic impacts” on economic sustainability in Brazil, according to Maplecroft.