BRIC Chart Book
12
BRIC Capital Markets Contact: Markus Jaeger +1 212 250-6971, Marco Semmelmann +49 69 910 31711 Global Risk Analysis BRIC Capital Markets Monitor June 2010 Chartbook The economic performance of the BRIC countries throughout the 2008-09 global economic and financial crisis was mixed. While China and India continued to grow rapidly in 2009, Brazilian GDP remained flat and Russia suffered a large contraction. The present strong growth momentum in Brazil, China and India has already led these countries to tighten monetary policy and/or scale back (extraordinary) liquidity operations introduced during the height of the crisis. By contrast, the Russian central bank has continued to lower interest rates. In terms of economic fundamentals, the BRICs have largely emerged unscathed from the global crisis. While many developed economies are struggling with large fiscal deficits and rising government debt levels, there are no near-term sustainability concerns in the BRICs. Public debt in India remains elevated, but manageable, underpinned by strong growth. Brazil’s public debt is set to decline gradually in spite of strong election-driven spending increases. China’s debt remains very low (even if contingent liabilities are added to the government stock) and fiscal deficits small. Last but not least, Russia has had the wisdom to save money, allowing it to finance its deficits largely by drawing down government savings. The medium-term outlook, more than in any other BRIC economy, will depend on future energy prices. Similarly, the external position of the BRIC countries remains solid. All four governments are net external creditors and the BRICs are among the world’s largest holders of official FX reserves. Sovereign foreign debt is very small. Only the Russian government is planning to tap foreign bond markets for meaningful amounts, and even this may not happen if the fiscal deficit continues to narrow. The external position of the private sector varies across the BRICs. China and Russia continue to run current account surpluses, while Brazilian and Indian deficits remain quite manageable. The BRIC economies should continue to register solid economic growth, while many developed economies struggle with elevated private- and/or public-sector debt burdens and greater economic and financial uncertainty. The “performance gap” between the BRICs and the developed markets has widened since the onset of the global crisis. Economic size BRICs rank among top-10 on PPP basis Financial assets BRIC financial markets are less developed 0 100 200 300 400 500 600 Japan EU US EM Asia LatAm Middle East EM Europe Source: IMF GFSR as of April 2010 Bonds, equities and bank assets (% of GDP), as of 2008 Country Nominal GDP % world GDP at PPP 1 United States 14.3 20.5 2 Japan 5.1 6.0 3 China 4.9 12.5 4 Germany 3.4 4.0 5 France 2.7 3.0 6 UK 2.2 3.1 7 Italy 2.1 2.5 8 Brazil 1.6 2.9 9 Spain 1.5 2.0 10 Canada 1.3 1.8 11 India 1.2 5.1 12 Russia 1.2 3.0 13 Australia 1.0 1.2 14 Mexico 0.9 2.1 15 Korea 0.8 1.9 Source: IMF 2009 estimates as of WEO April 2010
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Transcript of BRIC Chart Book
BR
IC C
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al M
arke
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onta
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212
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+49
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BRIC Capital Markets Monitor June 2010Chartbook
The economic performance of the BRIC countries throughout the 2008-09 global economic and financial crisis was mixed. While China and India continued to grow rapidly in 2009, Brazilian GDP remained flat and Russia suffered a large contraction. The present strong growth momentum in Brazil, China and India has already led these countries to tighten monetary policy and/or scale back (extraordinary) liquidity operations introduced during the height of the crisis. By contrast, the Russian central bank has continued to lower interest rates.
In terms of economic fundamentals, the BRICs have largely emerged unscathed from the global crisis. While many developed economies are struggling with large fiscal deficits and rising government debt levels, there are no near-term sustainability concerns in the BRICs. Public debt in India remains elevated, but manageable, underpinned by strong growth. Brazil’s public debt is set to decline gradually in spite of strong election-driven spending increases. China’s debt remains very low (even if contingent liabilities are added to the government stock) and fiscal deficits small. Last but not least, Russia has had the wisdom to save money, allowing it to finance its deficits largely by drawing down government savings. The medium-term outlook, more than in any other BRIC economy, will depend on future energy prices.
Similarly, the external position of the BRIC countries remains solid. All four governments are net external creditors and the BRICs are among the world’s largest holders of official FX reserves. Sovereign foreign debt is very small. Only the Russian government is planning to tap foreign bond markets for meaningful amounts, and even this may not happen if the fiscal deficit continues to narrow. The external position of the private sector varies across the BRICs. China and Russia continue to run current account surpluses, while Brazilian and Indian deficits remain quite manageable.
The BRIC economies should continue to register solid economic growth, while many developed economies struggle with elevated private- and/or public-sector debt burdens and greater economic and financial uncertainty. The “performance gap” between the BRICs and the developed markets has widened since the onset of the global crisis.
Economic sizeBRICs rank among top-10 on PPP basis
Financial assetsBRIC financial markets are less developed
0
100
200
300
400
500
600
Japan EU US EM Asia
LatAm Middle East
EM Europe
Source: IMF GFSR as of April 2010
Bonds, equities and bank assets (% of GDP), as of 2008Country Nominal GDP % world GDP at PPP1 United States 14.3 20.52 Japan 5.1 6.03 China 4.9 12.54 Germany 3.4 4.05 France 2.7 3.06 UK 2.2 3.17 Italy 2.1 2.58 Brazil 1.6 2.99 Spain 1.5 2.0
10 Canada 1.3 1.811 India 1.2 5.112 Russia 1.2 3.013 Australia 1.0 1.214 Mexico 0.9 2.115 Korea 0.8 1.9
Source: IMF 2009 estimates as of WEO April 2010
DB BRIC Capital Markets Monitor 2
Contents
1. Special section: BRIC trade patterns…..……………………………….. 3
2. Market snapshot…………………………………………………………….. 4
3. Economics……………………………………………………………………. 5
4. Debt levels & demography………………………………………………… 6
5. CDS & international bonds………………………………………………… 7
6. Domestic bonds.................................................................................... 8
7. Equity markets………………………………………………………………. 9
8. Cross-border bank lending………………………………………..………. 10
9. Banking sector….….………………………………………………………… 11
DB BRIC Capital Markets Monitor 3
1. Special section: BRIC trade patterns
ExportsEurope is the single largest trading partner…
Imports… for all BRICs
Structure of exportsVersatile export structures
Trade opennessChina and India most open
Services sectorServices most important for India
Trade balanceChina with largest imbalance
▲Back to contents
-20
-10
0
10
20
30
40
50
05 06 07 08 09 10
Brazil Russia India China
Difference of exports and imports, USD bn
Source: IMF
0102030405060708090
100
Brazil Russia India ChinaServices ManufacturesFuels and mining products Agricultural products
Exports by main commodity group & services, % of total exports
Source: WTO
0
10
20
30
40
50
60
90 92 94 96 98 00 02 04 06 08
Brazil Russia IndiaChina Germany USA
Avg. of exports and imports of g&s in % of GDP
Source: World Bank
EU EU EU EUUS
US
US USCN
CNCN HK
JPJP
KR
KR
AR
UAAUSAOther
Other
OtherOther
0
5
10
15
20
25
Brazil Russia India ChinaSource: IMF DOTS
Imports in % of nominal GDP, 2009
Source: IMF DOTS
EU EU EU EUUS
US
US
US
CN
CN
CNAEHK
HKKRTRUA
AR JP
JP
Other
Other
Other
Other
0
5
10
15
20
25
30
Brazil Russia India ChinaSource: IMF DOTS
Exports in % of nominal GDP, 2009
0
2
4
6
8
10
12
14
16
Brazil China Russia India
Source: World Bank
Trade in services, % of GDP, 2008
DB BRIC Capital Markets Monitor 4
2. Market snapshot
CDS spreadsBack to “normal”
Net debt flowsModest rebound
Central bank policy ratesBRICs first in line to tighten
Exchange ratesHit by recent global jitters
Equity marketsOff their post-crisis peak
Portfolio equity flowsMixed picture
▲Back to contents
0
200
400
600
800
1000
1200
2005 2006 2007 2008 2009 2010
Brazil Russia China
5Y CDS sov. spreads, bp
Source: DB Global Markets
0
100
200
300
400
500
600
2005 2006 2007 2008 2009 2010
Brazil (BOVESPA) Russia (RTS)
India (BSESN) China (SSEB)
Equity indices, index 2005=100
Source: Bloomberg
Country Trend
United States 0.25 ↑Europe 1.00 →Japan 0.10 →Brazil 10.25 ↑Russia 7.75 ↓India 5.25 ↑China 5.31 ↑Sources: DB Research, Bloomberg
Current interest rate, %
405060708090
100110120130140
2005 2006 2007 2008 2009 2010
Brazil Russia India China
Exchange rates vs. USD, index Jan 2005=100
Source: Bloomberg
-40-20
020406080
100120140
2000 2002 2004 2006 2008 2010
Brazil Russia India China
Net debt flows, commercial banks and other private creditors, USD bn
Source: IIF
-20
-10
0
10
20
30
40
50
Brazil Russia India China
2008 2009 2010 2011
Source: IIF
__Net equity flows, USD bn
DB BRIC Capital Markets Monitor 5
3. Economics
Economic growthChina continues to lead other BRICs
Economic sizeChina is larger than all other BRICs combined
Current accountChina & Russia vs Brazil & India
Capital accountChina continues to lead
FX reservesChina is in a class of its own
Exchange ratesChina stands out
▲Back to contents
02468
1012141618
1992 1995 1998 2001 2004 2007 2010 2013
Brazil Russia India China
GDP at PPP, % of global GDP
Source: IMF WEO as of April 2010
405060708090
100110120130140
2005 2006 2007 2008 2009 2010
Brazil Russia India China
Exchange rates vs. USD, index Jan 2005=100
Source: Bloomberg
-10
-5
0
5
10
15
20
1995 1998 2001 2004 2007 2010
Brazil Russia India China
Current account, % of GDP
Source: IMF WEO as of April 2010
0
20
40
60
80
100
120
2005 2006 2007 2008
Brazil Russia India China
FDI inflows, USD bn
Source: UNCTAD
-20
-15
-10
-5
0
5
10
15
20
1980 1986 1992 1998 2004 2010F
Brazil Russia India China
Real GDP, % change
Source: DB Research
0
500
1000
1500
2000
2500
2005 2006 2008 2010F
Brazil Russia India China
FX reserves, USD bn
Source: DB Research
DB BRIC Capital Markets Monitor 6
4. Debt levels & demography
Demography & economic sizePunching below its potential economic weight
Dependency ratioChina & Russia vs Brazil & India
Fiscal balanceStark differences
External financing requirementsVery manageable
Population growthFavourable outlook for Brazil & India
Public debt China & Russia vs Brazil & India
▲Back to contents
05
101520253035404550
2000 2005 2010 2014
GDP Population
Source: IMF WEO April 2010
BRICs as % of world GDP and population
-1
-1
0
1
1
2
2
3
1980 1984 1988 1992 1996 2000 2004 2008
Brazil Russia India China
Population growth, annual %
Source: World Bank
0
10
20
30
40
50
60
70
80
1980 1990 2000 2010 2020 2030 2040 2050
Brazil Russia India China
Dependency ratio, i.e. sum of the population aged 0-14 and that aged 65+ to the population aged 15-64, medium variant
Source: UN
-20
0
20
40
60
80
100
Brazil Russia India China
Source: DB Research
2010F EFR as % FX reserves
0
10
20
30
40
50
60
70
80
2000 2002 2004 2006 2008 2010F
Brazil Russia India China
Total public debt, % of GDP
Source: DB Research
-15
-10
-5
0
5
10
2000 2002 2004 2006 2008 2010F
Brazil Russia India China
Fiscal balance, % of GDP
Source: DB Research
DB BRIC Capital Markets Monitor 7
5. CDS & international bonds
▲Back to contents
CDS spreadsBack to “normal”
International debt securitiesBRICs remain insignificant
International debt securitiesStark differences
International debt securitiesFIs are generally the dominant issuer
International debt securities - private sectorRussia slowing down
Gross international bond issuanceOff its post-crisis peak
0
200
400
600
800
1000
1200
2005 2006 2007 2008 2009 2010
Brazil Russia China
5Y CDS sov. spreads, bp
Source: DB Global Markets
United States ; 6,770
BRIC; 372
Rest of the World;
19,474
Source: BIS
By nationality of issuer as of Mar 2010, USD bn outstanding
0
20
40
60
80
100
120
140
160
Brazil Russia India ChinaFinancial institutions Corporate issuers Governments
International debt securities as of March 2010, USD bn
Source: BIS
0
20
40
60
80
100
120
140
2002 2003 2004 2005 2006 2007 2008 2009 2010
Brazil Russia India China
Corporates and financial institutions, USD bn
Source: BIS
-10-505
10152025303540
Brazil Russia India China2007 2008 2009
Source: BIS
__Net international bond issuance, total, USD bn
Note: Dealogic and BIS data may vary
0
10
20
30
40
50
60
70
80
90
100
2000 2003 2006 2009
Brazil
Russia
India
China
USD bn
Source: DealogicNote: Dealogic and BIS data may vary
DB BRIC Capital Markets Monitor 8
6. Domestic bonds
▲Back to contents
ELMI+ vs EMBI+Local vs external bond returns
Domestic debt securities outstandingChina again in a class of its own
Central bank policy ratesG-3 versus BRICs
Domestic debt securitiesgovernment vs rest
Domestic debt securities - private sectorRapid growth in China
Domestic debt securitiesGrowing rapidly in China, flat in Russia
90
100
110
120
130
140
150
160
170
2005 2006 2007 2008 2009
EM Local Index EMBI Global Composite
Index, Jun 2005=100
Source: DB Global Markets
Rest of the world;
59,755
Brazil; 1,250 India; 603
Russia; 49
China; 2,565
Source: BIS
By residence of issuer as of December 2009, USD bn
0
500
1000
1500
2000
2500
3000
2000 2002 2004 2006 2008
Brazil Russia India China
Stock, all issuers, USD bn
Source: BIS
0
50
100
150
200
250
300
350
Brazil India China2007 2008 2009
Source: BIS
__Change in stocks, USD bn
Country Trend
United States 0.25 ↑Europe 1.00 →Japan 0.10 →Brazil 10.25 ↑Russia 7.75 ↓India 5.25 ↑China 5.31 ↑Sources: DB Research, Bloomberg
Current interest rate, %
0
25
50
75
100
Brazil India China
Corporates Financial institutions Governments
Domestic debt securities as of Dec. 2009, share of total in %
Source: BIS Remark: Data for Russia n.a.
DB BRIC Capital Markets Monitor 9
7. Equity markets
▲Back to contents
Equity market performanceOff post-crisis peak
Global equity market capIncreasingly important players
IPOsRebounding
M&A volumesBelow 2006-08 highs
BRIC vs DMBRICs outperform G7 by wide margin
P/E ratiosMixed picture
0
100
200
300
400
500
600
2005 2006 2007 2008 2009 2010
Brazil (BOVESPA) Russia (RTS)
India (BSESN) China (SSEB)
Equity indices, index 2005=100
Source: Bloomberg
Rest of the world;
21,642
Brazil; 1,159 Russia;
499 India; 1,300
China; 2,801
Hong Kong; 2,043
United States; 13,256
Source: Bloomberg
By residence of issuer, USD bnas of June 2010
0
50
100
150
200
250
300
350
400
2005 2006 2007 2008 2009 2010
BRIC Standard Core G7 INDEX Standard Core
MSCI BRIC vs. G7, Jan 2005=100
Source: MSCI
0
5
10
15
20
25
S&P500 Brazil Russia India China HK
Source: Bloomberg
__Price-earnings ratio, as of June 2010
0
5
10
15
20
25
30
35
40
2002 2003 2004 2005 2006 2007 2008 2009 2010
BrazilRussiaIndiaChina
USD bn
Source: Dealogic
0
50
100
150
200
250
2002 2003 2004 2005 2006 2007 2008 2009 2010
Brazil
Russia
India
China
USD bn
Source: Dealogic
DB BRIC Capital Markets Monitor 10
8. Cross-border bank lending
▲Back to contents
Cross-border bank lendingBRIC share remains very small
Cross-border bank lendingChina & Russia with sharp decline
Signed int’l syndicated loan facilitiesRecovering at the margin
Signed int’l syndicated loan facilitiesMixed picture
Cross-border bank lendingMixed picture
Cross-border bank-to-bank lendingChina’s lending recovering
Brazil; 92 Russia; 121
India; 109China;
124
Rest of the world;
21,171
Source: BIS
Stock, external loans of reporting banks vis-à-vis all sectors,USD bnas of Dec. 2009
020406080
100120140160180200
2000 2002 2004 2006 2008
Brazil Russia India China
Stock, external loans of reporting banks vis-à-vis all sectors, USD bn
Source: BIS
-60
-40
-20
0
20
40
60
80
2000 2002 2004 2006 2008
Brazil Russia India China
Change in stocks, external loans of reporting banks vis-à-vis all sectors, USD bn
Source: BIS
0
10
20
30
40
50
60
00 01 02 03 04 05 06 07 08 09
Brazil
Russia
India
China
USD bn
Source: BIS
0123456789
10
Brazil Russia India China
Q1 2009 Q1 2010
Source: BIS
USD bn
0
20
40
60
80
100
120
140
2000 2002 2004 2006 2008
Brazil Russia India China
Stock, external loans of reporting banks vis-à-vis banks only, USD bn
Source: BIS
DB BRIC Capital Markets Monitor 11
9. Banking sector
▲Back to contents
Ownership structure in banking sectorGov’t retains important role
Stock of credit to the private sectorChina vs the rest
Banking sector claims on governmentBrazil & India vs China & Russia
Growth of credit to private sectorChina stands out
Real deposit growthChina stands out
M2“Financialisation” much higher in China & India
0
20
40
60
80
100
120
140
160
180
200
Brazil Russia India China
M2 % of GDP, as of July 2009
Source: IFS
0
25
50
75
100
Brazil China India RussiaForeign Public Private
% of banking assets
Sources: Fitch, DB Research
0
20
40
60
80
100
120
140
00 01 02 03 04 05 06 07 08 09
Brazil Russia India China
% of GDP
Source: IFS
-10-505
101520253035
00 01 02 03 04 05 06 07 08 09
Brazil Russia India China
Real deposit growth, % yoy
Source: IFS
-20
-10
0
10
20
30
40
50
60
00 01 02 03 04 05 06 07 08 09
Brazil Russia India China
Credit to private sector growth, % yoy
Source: IFS
0
10
20
30
40
50
60
00 01 02 03 04 05 06 07 08 09
Brazil Russia India China
% of total assets
Source: BIS
DB BRIC Capital Markets Monitor 12
Abbreviations
Abbreviations
BIS = Bank for International SettlementsIIF = Institute of International FinanceIMF = International Monetary FundIFS = International Financial Statistics (IMF)WEO = World Economic Outlook (IMF)GFSR = Global Financial Stability Report (IMF)UN = United NationsMSCI = Morgan Stanley Capital International
© Copyright 2010. Deutsche Bank AG, DB Research, D-60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite “Deutsche Bank Research”.The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, authorised by Bundesanstalt fürFinanzdienstleistungsaufsicht. In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange regulated by the Financial Services Authority for the conduct of investment business in the UK. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Limited, Tokyo Branch. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product.
