Posted in Finance Articles, Total Reads: 1957
, Published on 27 January 2013
The news given in the title has been doing rounds since sometime. MIST comprises of Mexico, Indonesia, South Korea and Turkey while BRICS refer to Brazil, Russia, India, China and South Africa. BRIC was coined in 2001 by Jim O’ Neil, Chairman of Goldman Sachs Asset Management division, as economies capable of rivaling G7 in terms of global growth, whereas MIST was identified as a part of the Next-11 (N-11) countries defined by Jim O’ Neill in 2005 as the new hot emerging economies that would come after the BRICS.
The MIST economies have more than doubled (wrt GDP growth) during the last decade, and continue surging despite global economy concerns. To begin with, Goldman Sachs N-11 Equity Fund opened in February, 2011 to invest in the next big 11 emerging markets has climbed 12 percent this year (MIST accounting to 73% of N-11 GDP), compared with a decent gain of 1.5 percent in GS’s fund for the BRIC. The effect of the current financial crisis on MIST countries are also less than that of the BRICS. The MIST countries account for around 7% of the world population and 3% of global land area. For BRICS the figures are around 40% and 25% respectively. All the four MIST account for more than 1% of global GDP each and are fast-growing markets for consumer goods and services. Let’s be not judgmental at this moment, but we should try and analyze the factors that have attracted the attention of the world to fast-growing emerging economies beyond BRICS.
The Rise of MIST
Three Asian countries and one North American country are included in MIST. Three Asian, one African and one South American country constitute the BRICS. Hence, both the acronyms are dominated by Asian countries which strengthen the fact that Asian countries contribution to the growth of world economy cannot be disregarded.
Mexico’s (2nd largest Latin American economy) growth has outpaced Brazil’s for a second year, thanks to Mexico’s record auto exports, and waning Chinese demand for the South American nation’s commodities. In fact, Brazil imported 5.6 percent of Mexico’s vehicles sold abroad. Mexico is increasingly competing with China for manufacturing as costs are rising in the Asian nation. Indonesia, the largest economy in the Southeast Asia has grown by 6.3 percent in the second quarter supplemented by huge domestic spending and investment. South Korea, one of the fast growing developed countries has grown by 2.9 percent in the second quarter. Shipbuilding is the flagship industry of South Korea. Turkey’s strategic location allows it to reap benefits of the two worlds –Eastern Europe and Western Asia. It has been growing by around 3% in the last quarter.
Let us consider some parameters that would serve as a basis of comparison between the two entities:
1. The Markets:
Stock markets are an important indicator of the growth or a fall in an economy. Hence the current position of the benchmark stock market of a nation reflects on how well the nation is doing.
The Mexico’s benchmark IPC Index (MEXBOL) has climbed 11 percent this year and Indonesia’s Jakarta Composite Index (JCI) has gained 7.4 percent, whereas South Korea’s Kospi (KOSPI) has increased 3.3 percent. Turkey’s ISE National 100 Index (XU100) has surged 28 percent.
The BSE India Sensitive Index (SENSEX) is the best-performing among BRICs equity benchmarks, increasing 13 percent, compared with a 2.6 percent gain in Russia’s Micex Index (INDEXCF) and a 2 percent drop in the Shanghai Composite Index (SHCOMP). The Brazil’s Bovespa (IBOV) and the Johannesberg Stock exchange (JSE) have recorded a similar growth of 2.8 percent this year.
2. GDP Growth Rate:
The total GDP of MIST countries was around $3.9 trillion (Individual breakup shown in the bar-diagram below) less than one-third of that of $14.5 trillion recorded by BRICS. China alone accounted for $ 7.7 trillion, which was nearly double than the cumulative GDP of MIST countries (Source: IMF). The MIST countries grew at 5.6% last year compared to growth rate of 5.8% demonstrated by BRICS. The MIST economies contribute to around 7% of the world GDP, whereas BRICS contribute around 25%.The Services sector share in all the nation’s GDP is quite high, with agricultural and industry sector taking a backstage.
3. Type of Economies and Governance:
All the MIST countries are ranked higher than most of the BRICS nations on the Geneva-based World Economic Forum’s 2012 trade openness index. This ranking gives us a major insight on the policy framework of these countries based on the parameter of how friendly they are for a foreign nation i.e how much do they welcome foreign goods into the country and enable access to foreign markets for its exporters. With regards to parameter of ‘Ease of doing business’ the average rank for MIST is 65, and for BRICS it is 117 (Source: World Bank). In the MIST arena, all are democracies, whereas two states are authoritarian, and three are democracies in BRICS.
Ranks of BRICS countries Ranks of MIST countries
4. State of Local Currency and Inflation Rate:
The current economic crisis faced by the world has impacted all the major economies, and there has been a decrease in demand for the foreign goods and services. As a result, there is a heavy surge in demand for US dollars (safe havens) which has led to depreciation of the local currencies of the nations. BRICS and MIST, alike are not indifferent in this case.
Except China which has got a huge Current Account Surplus, the value of currency has actually appreciated. For other member nations of BRICS and MIST, the condition is much worse. Depreciation of currency, though, has certainly helped these countries to aggressively export at lower prices, and lower their trade deficit.
Inflation has been a cause of worry for majority of these nations, with the average inflation rate of the MIST countries pegging around 4.5% in July, 2012 while that for BRICS it is around 5%. The cost of the goods has risen leading to increase in the cost of manufacturing, but lower value of local currency has offset this rise, pricing the goods at more competitive rates in the world market.
5. Foreign Investor Sentiments and Credit Ratings
If we look at the global economic outlook, the foreign investor’s sentiments are negative everywhere. Hence all these economies are having hard times attracting inflow of foreign money (FDI’s and FII’s) into their countries. Their foreign reserves are declining, and with slow economic growth, the debt-GDP ratio is increasing. MIST is way behind BRICS when it comes to foreign reserves with $500 billion for MIST, while BRICS boast of huge reserves of around $4 trillion (Source : CIA World Factbook,IMF).
All the MIST countries are comfortable placed above the lowest investment grade (BBB-) with a ‘Stable’ outlook as rated by S&P, with South Korea rated highest at ‘A’ and Mexico rated lowest at ‘BBB’. The ratings for the BRICS have been affected much in recent times with China rated highest at ‘AA-‘ and India lowest at ‘BBB-‘ with a ‘Negative’ outlook.
Who will lay the Golden Egg – MIST or BRICS?
The performance of MIST is definitely at par in the current situation when compared to BRICS. Some economists have gone to the level of labeling MIST as ‘Another BRIC in the wall’. But the recent under performance by the BRICS, isn’t enough reason for giving up on the long-term potential present in these economies which grew at an average pace of four times faster than the U.S during the last decade. Anyways, the grass always looks greener on the other side.
Under the current growth rate, MIST would become capable of rivaling G7 by 2050, whereas BRICS would overtake G7 by that time. In this era of globalization and inter-dependence, an acronym or one group cannot drive the world economy all by itself. Each country is unique, and contributes to the global economy in its way. Only through collaborative and collective efforts between nations one can bring about harmony that would power the engines of our economy. For the moment, it seems wise to me to leave at the discretion of the reader which group he rates higher – An Emerging MIST or An Underperforming BRICS?
This article has been authored by Vaibhav Garg and Bhushan Kanathe from IIFT.
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