Goldman's Mr. Brics Turns Chilly

Posted by: Stanley Reed on February 06

Jim O’Neill, Head of Global Economic Research at Goldman Sachs, has long been an enthusiastic advocate of investing in the BRICS-Brazil, Russia,India,and China. In fact, he claims paternity of the term for these hot emerging markets. O’Neill has also been a longtime dollar bear. At a well-attended Goldman currency conference in London, O’Neill showed signs of wavering on both fronts. He said so many people had bought into the BRIC story that these countries’ markets were possibly overvalued compared to the beaten up U.S. In fact, he said an investor could probably assemble a basket of shares in U.S. and European multinationals with solid emerging markets exposure for half the price/earnings ratio as stocks in India and China. Betting on western companies at this point might have a better chance of making money than piling more chips on BRICs, he suggested. “At these prices it might be more interesting to think the other way,” he said.

O'Neill indicated that he was no longer a believer in the thesis that these countries would "decouple" and emerge unscathed from a U.S. recession. The BRIC he likes best these days is Brazil, which he says is entering a new growth phase. Goldman is souring on China.

O'Neill is also skeptical that there is still a good bear case on the dollar--especially with the Euro in the $1.50 range. He said that U.S. exports were showing the strongest surge in a generation and that the U.S. current acount deficit could be back at 3% of GDP or less within 12 to 18 months. It has recently narrowed from around 7% to about 5%. He said that the U.S. was even managing to sell cars to the rest of the world. "A lot of things that made me bearish about the dollar have started to turn," he said. "$1.50 (on the euro) is a lot different from 82 cents."