Soft Markets, Stimulus & BRICS


Written by: Jon McGraw

U.S. investors puzzled over disparate pieces of economic and world news last week. By the end of the week, major U.S. markets had tumbled indicating investors didn’t like what they’d seen.

Under new leadership, the Bank of Japan (BOJ) announced an aggressive stimulus program that will inject $1.4 trillion into its economy over the next two years. The effort is intended to end decades of stagflation. Stagflation is a period of economic stagnation characterized by rising inflation, higher unemployment, lackluster consumer demand, and lack of growth in business activity. Shares in the Japanese market, which closed before U.S. jobs numbers were announced, rose to almost a five-year high.

Elsewhere in Asia, escalating rhetoric from North Korea kept tensions high on the Korean Peninsula and negatively affected investor sentiment.

In the U.S., economic news was largely disappointing and suggested a slowdown in the U.S. economy may be ahead. Manufacturing and service numbers came in below expectations, and a U.S. Department of Labor report showed far fewer jobs were added last month than expected. On the positive side, a different report showed unemployment had ticked lower, moving to 7.6 percent from 7.7 percent.

After hitting an all-time high on Tuesday, the Standard & Poor’s 500 Index finished the week down 1 percent. The Dow Jones Industrials and NASDAQ Indices also tumbled, finishing the week down 0.1 percent and down 1.9 percent, respectively.

U.S. Treasury markets benefitted from uncertainty about the strength of U.S. economic growth, the outcome of the Japanese stimulus program, and the potential for violence in Korea. The yield on 10-year U.S. Treasury notes fell to 1.7 percent.

Data as of 4/5/13







Standard & Poor’s 500 (Domestic Stocks)







10-year Treasury Note (Yield Only)







Gold (per ounce)







DJ-UBS Commodity Index







DJ Equity All REIT TR Index








There’s a new BRIC in town.

You’ve probably heard of the BRIC countries – Brazil, Russia, India, and China. The nickname was created in 2001when Jim O’Neill, an economist and the future Chairman of Goldman Sachs, used it to describe the countries of the world that would drive future economic growth. He was right about the fact they would drive economic growth. According to The Economist, “The BRICS alone have been responsible for 55 percent of global growth since the end of 2009. Dragged down by debt and austerity, the 23 countries that make up the developed world contributed just 20 percent to that growth.”

You may have noticed The Economist capitalized the ‘S’ in BRICS. That’s because South Africa recently joined the team. It’s the smallest BRICS country with a population of just 50 million compared to more than 1 billion for both China and India. South Africa’s GDP isn’t all that impressive either. It ranks 28th in the world, according to The Guardian, while China ranks 2nd, Brazil 6th, Russia 9th, and India 10th. The statistical comparison begs the question: Why was South Africa added to the list of the world’s powerful emerging countries?

According to The Economist, geographic inequity was the driving force behind the new addition. The original BRICs did not include any countries in Africa which currently is the world’s fastest growing continent. Africa’s gross domestic product (GDP) growth is averaging about 6 percent a year, a pace that is expected to remain constant for another decade. Over the decade ending in December 2012 Africa has seen:

  • Foreign direct investment more than tripled to $46 billion
  • A 30 percent increase in real income per person
  • A 74 percent decline in HIV infections
  • A 30 percent decline in malaria deaths
  • Mobile communications grow: now there are three mobile phones for every four people
  • A 10 percent increase in life expectancy
  • Steeply falling infant mortality rates
  • An increase in secondary school enrollment

Source: The Economist

Africa is changing so rapidly many believe the continent deserves to have a voice as an emerging region of the world. How to give it that voice? The solution was to add South Africa, the continent’s largest economy, to the BRICS.

Weekly Fun – Think About It

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