Dreaming BRICs 2050

Dreaming BRICs was a Goldman Sachs paper released on 1 October 2003, which popularized the term BRIC [Brazil, Russia, India, China] with a macroeconomic investment thesis. The authors speculated a spectacular growth of the emerging block. Revisiting the feature one can see that the last 19 years have not worked out well for the forecast. Barring India, the rest of the BRICs have not produced spectacular returns and rather as the name innocuously suggested, two of the four components have sunk in underperformance vs. U.S. 500.

Figure 1 - The respective stock market benchmarks for the regions are considered and compared to the U.S. 500 market capitalized benchmark value.

Simplifying BRICs

BRICs might seem like storytelling at best. But in a parallel world a different subjective thesis could have had a ‘Simplifying BRICs’ forecast written back in 2007, a feature explaining, why the BRICs were not a coherent group as two of the four components were a commodity play while the other two had stark contrasts with each other, and Indian outperformance seemed likely because China needed a lot more to move from manufacturing to services, while India had to overcome its infrastructural challenge to get ahead. When I wrote this article 14 years back, I did not know how the future would judge me. I got lucky. My ‘Simplifying’ narrative seems better at half-time than the ‘Dreaming’ narrative.

Limits of storytelling

The informational content may give the illusion of explainability, but the causality of today is gone tomorrow as extraneous events enter the fray. Be it war, inflation, political uncertainty, demographics, or economic axioms, information content is myopic, a chaotic beast, which is limited in its capacity to create consistent wealth.

Dispersion mechanism

The dispersion of India and China with such a large margin [more than 1000%] highlights many inefficiencies of bundling heterogeneous components with diverse characters into a small group. A heterogeneous non-diversified group was expected to be concentrated, risky, hard to anticipate, noise-generating, and hence not investable. The case of the India-China pair dispersion that failed its ‘Dreaming’ narrative highlights the societal inability to understand the limits of information and the failings of informational content. 

Dispersion is a mechanistic outcome. And longer the time horizon, the less relevant the informational content. The idea of understanding information beyond its temporal limits is where Science begins. An objective context could visualize information to live in states, which evolve in time and operate under boundaries. Like anything physical, these states could interact, create energy, dissipate energy, and find a way to move in perpetual stages of disequilibrium, sometimes coming to rest in equilibrium. For this objective context, dispersion won’t be a noise, it would be the needed force for the system to stay in motion.

Long term descriptives

Even if such a mechanism was understood, it would be hard to map it with certainty. Forecasts themselves are a function of dynamic systems, and hence need adapting. I did a small exercise of Cartesian plotting [x,y] the returns of the Indian Sensex [X axis] along with the Shanghai composite [Y axis] for the 1-year, 3-year, 5-year, and 10-year rolling periods. The 10-year rolling period was the most articulate about the Indian bias over China. 

Figure 2 - All the Y-axis depicting Shanghai Composite returns are from -3 to 3 [depicting -300% to + 300%] . The X axis depicts Indian Sensex 30 from -3 to + 3 [depicting -300% to + 300%] for Year 1 and Year 2 rolling returns and -3 to +6 [depicting -300% to + 600%] for 5 years and 10 years rolling performance.

The next 30 years, like the first 20, will continue to be hard to predict. However, what is certain is that the extremities define the boundaries. India-China extremity may not have hit a boundary, but eventually, it will, and when it does, the dispersion would move to the other side.

Let’s revisit the pair in 2030.

Disclaimer: The views and opinions expressed in this article belong to the author and do not necessarily reflect the views or position of any entities the author represents.

Bibliography

1] Wilson, D., Purushothaman, R., " Dreaming with BRICs: The Path to 2050", Goldman Sachs, Oct 2003

2] Pal, M., "Simplifying BRICs", Business Standard, Sep 2007