2000s - Rise of BRIC | Cavanaugh Capital Management

The 2000s - The Times That Tried Investors' Souls
December 31, 2009
By: Taylor Graff, Senior Associate

Story #5 – Rise of BRIC

During the 90’s, emerging markets dramatically underperformed the developed world. While the developed world enjoyed the Great Moderation and tech boom, emerging economies in Southeast Asia, Russia and South America were all hit with local financial crises during the 90’s.

But in the recession of 2000-2001, emerging economies were insulated from the technology bubble and fared better than developed nations. Investors around the world started to look to the emerging world as a growth opportunity after the tech bust and BRIC came to embody that enthusiasm. Brazil, Russia, India and China (together referred to as BRIC though they have no official association) are four of the twelve largest economies in the world^vii but they remain underdeveloped. The four nations contain 40% of the world’s population but just under 15% of the world’s GDP, hence tremendous potential for growth.

Coming out of the recession in 2002, all four nations skyrocketed posting tremendous gains from 2003-2007:

China up 596%
India up 528%
Russia up 515%
Brazil up 508%

However, these emerging economies were not immune to the financial crisis. The crash in commodity prices hurt the mining, farming and drilling industries which are significant in all four countries. Deterioration in worldwide credit markets made capital scarce and expensive in emerging economies. Finally, the flight to safety and deleveraging which gripped the global economy caused investors to pull money out of BRIC financial markets. All four nations’ stock markets dropped by more than 60% during the financial crisis but as the table shows, the stock market returns of BRIC over the last ten years were impressive compared to the United States and the developed world.	Cumulative Stock Market Returns 2000-2009

	^viiiClick here for disclosures.

Can these markets continue their impressive outperformance? The answer will depend on whether their innovative dynamism can continue to drive productivity higher and whether their governments can remain stable and continue to adapt policy to foster economic growth. For better or worse, globalization has made the BRIC nations major players in the world economy and so they will be a major force shaping the direction of financial markets over the coming decade.

Next ...September 11, 2001

Timeline of Events

2000
10-Jan	AOL acquires Time Warner
10-Mar	Nasdaq peaks at 5,132 marketing the height of the Tech Bubble
3-Apr	Microsoft declared a monopoly in Federal Court
18-May	Boo.com declares bankruptcy
6-Nov	Pets.com declares bankruptcy
7-Nov	Voters go to the polls in the historically close election of 2000
12-Dec	Supreme Court rules in Bush v. Gore, resulting in Bush's victory
2001
3-Jan	Federal Reserve unexpectedly cuts key interest rates for the first time since 1998
31-Mar	1Q GDP report shows first decline in GDP since 1991
11-Sep	Terrorist attacks cause financial market freefall
7-Oct	U.S. led forces invade Afghanistan
22-Oct	Enron acknowledges SEC investigation into its accounting practices
15-Nov	Oil falls to $17.45 a barrel, the low point for the decade
2-Dec	Enron declares bankruptcy
2002
3-Jun	Dennis Kozlowski resigns as CEO of Tyco amidst a tax and accounting scandal
26-Jun	SEC launches investigation into WorldCom's accounting practices
12-Jul	WorldCom declares bankruptcy
10-Oct	S&P 500 bottoms at 768.63, 51% below its all-time high set in 2000
2003
20-Mar	U.S. Led forces invade Iraq
2004
30-Jun	Federal Reserve raise key interest rate
1-Oct	Oil officially closes above $50/barrel
2-Nov	President George W. Bush wins reelection, defeating Senator John Kerry
2005
29-Aug	Hurricane Katrina makes landfall; oil and gasoline prices skyrocket
17-Oct	Refco declares bankruptcy
2006
1-Feb	Ben Bernanke takes over as Chairman of the Federal Reserve
2007
27-Feb	Dow Jones Industrial Average drops 400 points (largest drop since 9/11/2001) after HSBC announces significant write-downs on its sub-prime mortgage holdings
2-Apr	Sub-prime mortgage giant, New Century, files for bankruptcy
16-Jul	Bear Sterns announces that two sub-prime mortgage hedge funds had collapsed
10-Aug	Central banks around the world inject liquidity in response to the financial crisis
16-Aug	Countrywide takes out an emergency $11 billion loan
11-Oct	S&P 500 peaks at 1,576.09
7-Nov	New York District Attorney, Andrew Cuomo, announces investigation into Washington Mutual's practices
2008
3-Jan	Crude oil trades above $100/barrel for the first time
11-Jan	Bank of America purchases Countrywide Financial
7-Feb	Auction Rate Security (ARS) crisis begins
16-Mar	Bear Sterns is purchased by J.P. Morgan in a deal orchestrated by the Federal Reserve to avoid Bear's bankruptcy
11-Jul	IndyMac is seized by the FDIC
7-Sep	Fannie Mae and Freddie Mac are placed in conservatorship by the Federal Government
14-Sep	Bank of America purchases a distressed Merrill Lynch
15-Sep	Lehman Brothers declares bankruptcy
17-Sep	Federal Reserve lends AIG $85 billion to avoid bankruptcy
25-Sep	Washington Mutual is seized by FDIC
29-Sep	Dow Jones Industrial Average drop 777 points, the largest decline in its history as the House votes down the Economic Stabilization Act
3-Oct	Wells Fargo and distressed Wachovia announce a merger
3-Oct	House passes Economic Stabilization Act and President Bush signs it into law
9-Oct	Icelandic banking system and currency collapses
13-Oct	Royal Bank of Scotland (RBS), HBOS, and Lloyds are rescued by British government
14-Oct	U.S. Treasury uses TARP to purchase equity in nine of the nation's largest banks
4-Nov	Senator Barack Obama is elected President of the United States, defeating Senator John McCain and becoming the nation's first African-American President
23-Nov	Citigroup receives an additional $20 billion from U.S. Treasury
11-Dec	FBI arrests Bernie Madoff for an alleged $50 billion ponzi scheme
19-Dec	President Bush announces that U.S. Treasury will provide a bridge-loan to GM and Chrysler
2009
16-Jan	Bank of America receives an additional $20 billion from U.S. Treasury
17-Feb	President Obama signs 2009 Stimulus Bill
9-Mar	S&P 500 bottoms at 666.79, a 12-year low and 58% below its 2007 peak, the largest drop since the Great Depression
30-Apr	Chrysler files for bankruptcy and announces alliance with Fiat
7-May	Federal Reserve releases the findings of its "stress tests" on bank capital showing better than expected results
1-Jun	GM files for bankruptcy
10-Jun	U.S. Treasury accepts first repayments from 10 banks in the TARP program
1-Nov	CIT group declares bankruptcy
25-Nov	Dubai World announces need to restructure debt or risk default
31-Dec	S&P 500 finishes 2009 with a 23.5% gain, up 71.8% from the March low