William Pesek

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April 20 (Bloomberg) — Jim O’Neill, chairman of Goldman Sachs Asset Management, talks about the outlook for Russia’s economy and challenges of higher global food prices. O’Neil, speaking with Margaret Brennan on Bloomberg Television’s “InBusiness,” also discusses the Middle East. (Source: Bloomberg)

Conference call, anyone?

Several times a year, the lords of the global economy descend on the city of the moment. Their massive entourages fly business class, zoom around in motorcades and sleep at 5-star hotels. What do taxpayers funding all this summitry get in return? Ambiguous communiqués, hollow pledges and a nagging sense that world leaders should discover videoconferencing.

The latest summit of emerging-market stars is a case in point. As if the alphabet soup of G-7, G-8, G-20, APEC and OPEC weren’t enough, we now must follow BRICS events. In 2009 and 2010, they were just BRIC affairs: Brazil, Russia, India and China. This year, an “S” was awkwardly added for South Africa. Even Jim O’Neill, the Goldman Sachs economist who 10 years ago coined the acronym BRIC, doesn’t get why it’s there.

Far more deserving additions exist in Asia – South Korea andIndonesia. Yet the more I see what the BRICS are becoming, the more I think Seoul and Jakarta should decline any invite. BRICS confabs reinforce how artificial the whole enterprise is.

Take the bluster about a new world order. No one in their right mind would argue we don’t need one, yet the Group of 20 nations is a far more productive framework for any redesign of global markets and institutions. And each of the BRICS has a seat at the G-20 table.

Staging Sideshows

The trick is for emerging economies to demand a bigger voice there — not stage sideshows. That’s not to say economic groupings are pointless. In Asia, for example, the 10-member Association of Southeast Asian Nations is the only forum where the world can engage Myanmar’s repressive regime. Still, Asean is more about photo opportunities than substance.

The Asia-Pacific Economic Cooperation group is a circus. The only real thing its 21 members have in common is beachfront property. An APEC-wide free-trade zone would be a wonderful thing. On its watch, bilateral agreements, not sweeping international ones, became the norm. APEC gatherings are now Davos-like affairs. Like the World Economic Forum, they’re an excuse for corporate bigwigs to jet in and do deals. Rather than meeting in Hawaii in November, APEC leaders should call it in and reduce their carbon footprint.

Important topics were broached at the April 14 BRICS summit at the Chinese city of Sanya, including regulating derivatives and volatility in commodity prices. What it really highlighted is what really matters: the “C” in BRICS.

The group hasn’t moved beyond being about China’s voracious appetite for the commodities of the other four members, with a bit of America-bashing tossed in.

China’s Money

Brazil, Russia, India and South Africa are key economies in their own right, yet BRICS gatherings have evolved into the geopolitical equivalent of investment roadshows. China has piles of money, and the real action is on the sidelines of formal discussions. There, officials angle for more Chinese investment and access to the nation’s 1.3 billion consumers.

This dynamic offers some useful reality checks. For India, it’s realizing a trade deficit with China exceeding $20 billion annually will grow no matter how close Prime Minister Manmohan Singh sits to Chinese President Hu Jintao at the BRICS table. For Russia, it’s a one-time superpower being part of an emerging-nation group it doesn’t even lead. For Brazil, it’s how Latin America’s biggest economy weakened its trade defenses for a Chinese government unwilling to do the same. For South Africa, it’s that more will be expected of it on the progress front.

BRICS Brotherhood

As much as these economies must harness China’s 9.7 percent growth, they also need to protect domestic economies. Their currencies are rising while China works 24/7 to maintain an undervalued yuan. The trouble is, membership in the BRICS brotherhood makes it hard politically for officials in Brasilia, Moscow, New Delhi or Pretoria to criticize Beijing.

That’s why anger is being projected elsewhere. The U.S. deserves some for its hypocritical policies since the 2008 crisis. Back in 1997, when Asia blew up, America told the region to raiseinterest rates to support currencies, reduce debt, avoid blaming speculators for market swings and follow free- market policies. Today, the U.S. is doing exactly the opposite.

Yet big changes like replacing the dollar are better handled by the broader G-20. With over $4 trillion of combined currency reserves, any BRICS move to dump the dollar will shake markets. If you think the real, ruble, rupee, yuan or rand will replace the dollar anytime soon you’re dreaming. Even if the yuan emerged as a viable reserve currency, it first must be fully convertible. That’s a ways off.

Eclipsing U.S.

BRICS don’t want to live in a world run by Washington –not when their combined gross domestic product could eclipse the U.S. by the end of 2014. And it’s ridiculous that the governance of the International Monetary Fund and World Bank still rotates between the U.S. and Europe to the exclusion of the rest of the world.

The future clearly belongs to emerging nations. It’s just not clear that the BRICS as a political entity is evolving into something that can play a credible role in creating it.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

Mexican billionaire Carlos Slim stands for a photograph in New York. Photographer: Chris Goodney/Bloomberg

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Feb. 10 (Bloomberg) — Mexican billionaire Carlos Slim talks with Bloomberg’s Betty Liu about his 2011 investment strategy in Latin America and his holdings in Saks Inc. and the New York Times Co. They spoke yesterday in New York. (Source: Bloomberg)

Carlos Slim, named the world’s richest man by Forbes Magazine, said he’s seeking to boost his investments in Colombia because of the country’s open policy on oil exploration, its mineral assets and growing middle class.

Slim aims to expand the drilling and oil-platform services he provides Mexico’s Petroleos Mexicanos through exploration opportunities in Colombia, he said yesterday in an interview at Bloomberg News headquarters in New York. Slim, whose holdings rose to $70 billion last year, has stakes in U.S. oil services companies Bronco Drilling Co. and Allis-Chalmers Energy Inc.

“The government is actively looking at the development of the oil industry and is promoting other investments,” he said. “We’re looking at what to do beyond the telecommunications business that we’ve been doing for 10 years in Colombia.”

Colombian foreign direct investment more than quadrupled in the past decade, to $7.2 billion in 2009 from $1.5 billion in 1999, after former President Alvaro Uribe repelled guerrilla groups that attacked oil pipelines and assassinated politicians.

OGX Petroleo & Gas Participacoes SA, the oil companycontrolled by Brazilian billionaire Eike Batista, said last year it may begin producing crude in Colombia in 2012. Batista is also boosting his investments in the Andean country, joining Anglo American Plc, BHP Billiton Ltd. Xstrata Plc and Drummond Co. in tapping South America’s largest coal reserves.

Surging Prices

Commodity prices are surging as emerging markets such as China and India require more resources to accommodate the needs and wishes of their growing middle classes for infrastructure and consumer goods, according to Slim. The depreciating value of the dollar is also driving those countries’ governments to build up their investments in commodities, he said.

“They don’t want to have Treasuries,” Slim said. “The dollar is weak and there’s no interest, and also with commodities they have reserves for internal consumption.”

Colombian President Juan Manuel Santos, who took office in August, is counting on rising commodity investments to fuel the Andean nation’s growth. Oil blocks auctioned last year will draw more than $1 billion over three years from companies including Royal Dutch Shell Plc, SK Energy Co. and Repsol YPF SA, according to the government.

Colombia attracted about $6.5 billion in foreign direct investment through the third quarter of 2010. Foreign direct investment in mining rose to $3 billion in 2009, the last year of annual figures available, from $1.8 billion in 2008, according to central bank figures.

Peso-Bond Slump

Still, Colombia’s fixed-rate peso bonds have slumped this year and stocks dropped amid concern the Central Bank may miss this year’s inflation target after floods choked off farmers’ supply routes, driving up food costs and sparking the biggest jump in monthly inflation since May 2008.

Colombia’s benchmark peso bonds due July 2020 touched an eight-month high of 8.2 percent on Feb. 8 and the IGBC stock index has dropped 5.6 percent this year.

Consumer prices rose 0.9 percent in January from December, pushing the annual inflation rate to 3.4 percent, the national statistics agency said in a Feb. 5 report. Banco de la Republica targets inflation between 2 percent and 4 percent this year.

As defense minister under Uribe from 2006 to 2009, Santos oversaw the rescue of 15 rebel-held hostages and an air strike into Ecuador that killed Raul Reyes, a top commander of the guerrilla group known as the FARC. Military offenses have reduced attacks on pipelines, roadways and bridges to 76 in 2009 from more than 800 in 2002, according to government figures.

Security Policies

Uribe’s security policies helped almost cut in half the number of murders and slash by 93 percent kidnappings by 2009, spurring economic gains. The Central Bank expects the economy to expand around 4.5 percent this year after growing en estimated 3.7 percent to 4.1 percent in 2010.

The son of a Lebanese immigrant who ran a dry-goods store in downtown Mexico City, Slim took advantage of periods of economic crisis in his native Mexico to buy real estate and assets such as a bottling company and a cigarette maker to amass his fortune. He acquired Telmex, asMexico’s biggest land-line phone company is known, in a 1990 privatization sale.

America Movil SAB, the mobile-phone carrier controlled by Slim, had 29.4 million mobile-phone subscribers in its unit covering Colombia and Panama at the end of last year, up 3.8 percent from a year earlier. The unit’s sales jumped 10.6 percent to 1.9 trillion Colombian pesos ($1.01 billion) in the fourth quarter as clients used their phones more for voice and Internet access.

Wireless Company

The wireless company, Latin America’s largest, was a 2001 spinoff from Telefonos de Mexico SAB and has become Slim’s biggest investment success. His holdings of America Movil were worth about $49 billion at the end of last year.

The dollar has dropped 7.1 percent in the past year against the Mexican peso. Gold has fallen 3.9 percent this year as an equity rally, spurred by the global economic recovery, eroded demand for an alternative investment.

Slim’s publicly traded assets were up 37 percent in 2010, with the biggest gain coming from Grupo Carso SAB, a holding company that was preparing a spinoff of its mining unit. Minera Frisco SAB, which became a separate company last month, is planning new mines in 2011 that will produce 437,577 ounces of gold a year, more than double last year’s output.

New York Times

His worst-performing stock last year, publisher New York Times Co., fell 21 percent. Slim’s publicly disclosed shares in U.S. markets represented less than $500 million of his total holdings, with the rest in Mexican companies.

He acquired shares of two of those companies, Bronco Drilling and Allis-Chalmers, through his own Carso Infraestructura y Construccion SAB, the contractor to Mexico’s Pemex.

“We believe in all Latin America and that’s why we’re investing,” Slim said. “The macroeconomic variables are sound, healthy and many of the countries have raw materials that are having good prices.”

(from www.bloomberg.com)

Managing partner of Traxis Partners LLC and former chairman of Morgan Stanley Asset Management Barton Biggs said, “The emerging markets, particularly Asia, are a place where I want to have a really major representation.” Photographer: Kevin P. Coughlin/Bloomberg

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Oct. 29 (Bloomberg) — Barton Biggs, co-founder of Traxis Partners LP, discusses the potential implications of Federal Reserve quantitative easing for stocks and the prospects of a bubble in emerging markets. Biggs, speaking with Betty Liu on Bloomberg Television’s “In the Loop,” also discusses his investment strategy. (Source: Bloomberg)

Barton Biggs warned of a U.S. stock- market bubble as early as January 1997 and stayed bearish for most of the following three years as the Standard & Poor’s 500 Index surged more than 90 percent to a record.

A decade later, Biggs says another bubble is beginning in emerging-market shares. This time, he’s bullish.

“We’re only halfway along the way to a gigantic eventual bubble in the emerging markets,” Biggs, the managing partner of New York-based hedge-fund firm Traxis Partners LLC and former chairman of Morgan Stanley Asset Management, said in an Oct. 29 interview on Bloomberg Television. “The emerging markets, particularly Asia, are a place where I want to have a really major representation.”

Biggs’s view is shared by Jeremy Grantham, whose investment firm had its assets under management shrink 45 percent in the late 1990s as his pessimistic outlook for high-priced technologystocks spurred clients to buy better-performing mutual funds. The chief strategist at Grantham Mayo Van Otterloo & Co. wrote on Oct. 26 that his forecast for an “emerging emerging bubble” was in “splendid shape” after the MSCI Emerging Markets Index soared 146 percent in the past two years.

While the 49 percent plunge in the S&P 500 from March 2000 to October 2002 proved Biggs, 77, and Grantham, 72, were right to warn of overvalued U.S. shares, their strategy now in emerging markets shows investors are increasingly seeking to profit from bubbles as the U.S. Federal Reserve increases its unprecedented monetary stimulus.

Surging Growth

Investment strategists at Bank of America Corp., Credit Suisse Group AG and Societe Generale SA have all said in the past two weeks that emerging-market stocks may climb above levels justified by companies’ assets and earnings because of surging economic growth and the Fed’s efforts to reduce yields on debt securities.

Emerging-market asset prices “may be running ahead of economic fundamentals” as “herding behavior” prolongs the rally, Nouriel Roubini, the New York University professor who predicted the global financial crisis, said at a conference in Cape Town today.

The MSCI emerging-market index rose 1.4 percent yesterday after a report showed China’smanufacturing strengthened and data on American spending and incomes underscored pressure on the Fed to announce more asset purchases this week. The index climbed 0.4 percent to 1,124.74 at 12:27 p.m. in New York.

‘Everyone’ Overweight

Investors poured more than $60 billion into emerging-market stock mutual funds in 2010 amid developing-nation growth that the International Monetary Fund says will reach 7.1 percent this year, more than double the 2.7 percent pace in advanced countries, data from Cambridge, Massachusetts-based EPFR Global show. Professional investors are more bullish on emerging markets than any region, according to a Bank of America survey last month of money managers overseeing $492 billion.

“Everyone and his dog are now overweight emerging equities, and most stated intentions are to go higher and higher,” Grantham, who helps oversee about $104 billion, wrote in his quarterly letter to clients posted on the firm’s website. Developing nations’ faster expansion “will give a powerful impression of greater value,” he said.

The MSCI emerging-market index’s 13 percent advance this year has lifted its price to 2.1 times net assets, a record relative to the MSCI World Index of developed-market shares, which trades at a ratio of 1.8, according to weekly data compiled by Bloomberg.

Analysts’ Estimates

Valuations are the “most stretched” in emerging markets, making them vulnerable to a selloff should global growth disappoint investors, Bob Janjuah, the co-head of cross-asset allocation strategy at Nomura International Plc, said in a Bloomberg Television interview on Oct. 27.

The MSCI emerging-market gauge still trades at a cheaper level than its October 2007 high of 2.9 times net assets, or book value, data compiled by Bloomberg show.

The S&P 500’s price-to-book ratio climbed as high as 5.3 in March 2000 as technology companies including Cisco Systems Inc. and Microsoft Corp. surged on speculation that widespread use of the Internet would cause earnings to soar. Stocks plunged in the next two years and Internet companies including Pets.com Inc. failed.

This year’s best-performing equity benchmark index among major developing nations, Indonesia’s Jakarta Composite Index, has climbed 44 percent and trades for 3.4 times book value, 48 percent more than the average ratio since Bloomberg began compiling the data in September 2001.

Emerging Premium

The emerging-market index trades at 13.1 times analysts’ estimates for 2010 earnings, a discount to the S&P 500’s ratio of 14, data compiled by Bloomberg show.

Grantham said in his Oct. 26 letter that developing-nation shares will command premium price-earnings ratios in the next few years because of faster economic growth and lower debt levels. He recommended a “moderately overweight” position in emerging-market equities.

Stocks, bonds and currencies in developing nations are likely to climb to bubble levels as the Fed announces another round of bond purchases this week, Michael Hartnett, Bank of America’s chief global equity strategist, wrote in an Oct. 21 report. Hartnett’s scenario, which he called the “most likely” of three outcomes, assumes the Fed will seek to buy $500 billion to $750 billion of debt securities and indicate it’s open to more purchases if needed.

Bullish Options

Credit Suisse’s Andrew Garthwaite says the combination of high savings rates, negative real interest rates and rising asset prices has made emerging-market countries including China and India vulnerable to speculative inflows.

“If ever the stage were set for an emerging-market bubble, we think it is now,” Garthwaite, Credit Suisse’s London-based global equity strategist, wrote in an Oct. 27 research report.

Stocks in the biggest developing nations may double as the Fed’s stimulus sends valuations back to their 2008 peak, Dylan Grice, a global strategist at Societe Generale, wrote in a research report e-mailed Oct. 22. Buying call options on emerging-market equities may be a cheap way to profit from a “nascent” bubble, Grice wrote.

Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will rise or fall. Calls give the right to buy a security through a specific date for an agreed price.

“The headache posed by bubbles depends on the asset managers’ perspective,” wrote Grice, who is based in London and was ranked the No. 2 strategist behind SocGen’s Albert Edwards inThomson Extel’s Pan-Europe 2010 survey. “For skeptics the pain is on the way up, for true believers it’s on the way down.”

(from www.bloomberg.com)

Russia’s deputy finance minister Dmitry Pankin, seen here, said, “From the point of view of any economic process or an investment project, it’s impossible to work in a situation when the exchange rate jumps 20 percent in four months.” Photographer: Alexander Zemlianichenko Jr/Bloomberg

Oct. 8 (Bloomberg) — Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc, talks about global currencies and Asian economies. Asia’s role as leader of the world recovery has lured $2 billion of capital inflows daily since 2009, spurring record gains in foreign-exchange reserves, according to DBS Group Holdings Ltd. Intervention by nations including China to limit currency gains is stoking trade tensions, with Brazilian Finance Minister Guido Mantega warning last month of a “currency war.” Neumann speaks from Hong Kong with Linzie Janis on Bloomberg Television’s “Global Connection.” (Source: Bloomberg)

The BRIC countries are united in opposing U.S. efforts to weaken or eliminate mechanisms to control currency fluctuations, Russia’s Finance Ministry said.

Brazil, Russia, India and China will put up “strong resistance” to attempts to make a “harsh appraisal” of currency controls at the annual meeting of the International Monetary Fund and World Bank this week in Washington, Deputy Finance MinisterDmitry Pankin told reporters late yesterday.

The BRIC countries “have agreed on a position that exchange rates aren’t themselves a problem,” Pankin said. “Rather they are a consequence of deeper processes, such as tendencies to save, to invest, of the investment climate.”

U.S. Treasury Secretary Timothy F. Geithner said this week that large economies undervaluing their currencies may accelerate inflation, create asset bubbles and restrict growth. China is the biggest target for criticism after limiting the yuan’s rise to about 2 percent against the dollar since a June pledge to make the currency more flexible.

The yuan was little changed today at 6.6712 per dollar at 1:29 p.m. Moscow time. Before relaxing the peg, China held its currency at about 6.83 per dollar for two years to shield its exporters from the global crisis.

‘Currency War’

Japan last month sold the yen for the first time in six years to spur exports and economic growth, joining countries across Asia and Latin America that have tempered gains in their currencies against the dollar. Brazil’s Finance Minister Guido Mantega warned Sept. 27 of a “currency war” and said that his government will buy all “excess dollars” in the market to curb the real’s appreciation.

Brazil is among the countries struggling with its currency’s appreciation, as investors pump record levels of cash into emerging markets since EPFR Global started tracking the data in 1995. Indian Finance MinisterPranab Mukherjee said yesterday it’s the duty of every central bank to watch inflows and intervene “as and when it is necessary.”

Capital “fluctuations” may also pose a risk for Russia, Pankin said.

“I don’t believe in a weak currency as a good way of having growth,” Alexei Ulyukayev, first deputy chairman of Bank Rossii, said in an interview in Moscow on Oct. 5.

‘Excessive Volatility’

The ruble depreciated the most in three weeks versus the dollar as oil declined. The Russian currency weakened 1.1 percent to 30.0100 per dollar at 2:27 p.m. in Moscow.

Russia’s central bank has pledged to shift its policy regime to target inflation and make the ruble a free-floating currency. Bank Rossii currently buys and sells currency on the market to steer the ruble’s value against a basket of euros and dollars to smooth “excessive volatility” in the exchange rate.

The central bank has “made serious progress in liberalizing the exchange rate,” selling $1.3 billion in September compared with interventions earlier this year that exceeded $10 billion a month, Ulyukayev said.

The central bank’s shift to a free-floating ruble is a “dangerous policy for the economy,” because a more flexible exchange rate may undercut Russia’s competitiveness, Deputy Economy Minister Andrei Klepach said Oct. 6. “Russia isn’t fully ready” for the free-float regime now, he said.

Sharp currency-exchange “fluctuations” act as a hurdle to growth, Pankin said. “From the point of view of any economic process or an investment project, it’s impossible to work in a situation when the exchange rate jumps 20 percent in four months,” he said.

“‘A free-floating exchange rate isn’t itself a cure for all ills,” Pankin said.