Should BRIC be BIIC?

People who follow emerging economies know BRIC (Brazil, Russia, India, China). There are some serious doubts on Russia's margin of safety for investors,(see previous post), noted China bull Jim Rogers

"Q: Where do you see Russia fitting into this as it comes onto the scene?

Rogers: I don’t. Russia will continue to disintegrate. The Soviet Union has already broken up into 15 countries. Putin controls Petersburg, Moscow, a few airports, et cetera, but Russia never has been a homogeneous [nation] - I mean, in the Soviet Union there were 124 - the "official" number was 124 - ethnic, linguistic, religious, historic and national groups. 

It’s broken up into 15 states. It’ll be 50 … it’ll be 100 [states] before it’s over. Ukraine may break up next. Who knows who’ll break up [after that]? Maybe even parts of Russia. 

To the bulls who say I’m wrong, my rejoinder is this: Let me ask you about Chechnya. The Russians have been trying to deal with Chechnya for 15 years with no success. 

Chechnya’s the size of Connecticut. Chechnya has a million-and-a-half people. If they can’t handle Chechnya, how is the Soviet Union, or Russia, going to handle these other places that are pulling away? 

There’s capitalism there, but it’s outlaw capitalism. If you’re good with dealing with the Mafia, you can probably make a fortune, if you’re on the ground [there]. For the most part, they have a lot of natural resources, which has been great. 

They have huge foreign reserves, but they’re stripping the assets. 

They’re not reinvesting for the most part in productive capacity. They’re stripping the assets. You know, oil production has peaked in Russia, even though there could conceivably be gigantic amounts of oil there somewhere. Nearly everything has peaked, because they have been stripping the assets, rather than reinvesting. "

To quote Charles Barkley "that's why I don't eat shrimp." The future for all the BRIC countries is probably bright in the long run, but in the short run where is the margin of safety for an investor in Russia?

Maybe instead of BRIC it should BIIC - Brazil, India, Indonesia and China. Indonesia just reported its seventh consecutive quarter of GDP growth in excess of 6%. Its the fourth largest country in the world with 240 million people and 17,000 islands. Its one to watch.

Comments

[Richard Bejtlich]

Agreed. I'd thrown Malaysia in their with Indonesia.