Information Bulletin of the BRICS Trade Union Forum
Issue 20.2019
2019.05.13 — 2019.05.19
International relations
Foreign policy in the context of BRICS
Russia, China cooperation strengthens international security, says Lavrov (Сотрудничество России и Китая способствует укреплению международной безопасности, считает Лавров) / Russia, May, 2019
Keywords: mofa, cooperation, sergey_lavrov, quotation, national_security

Sochi, May 13. /TASS/. Moscow and Beijing are actively cooperating with a view to enhance global security and stability, Russian Foreign Minister Sergey Lavrov said on Monday before the talks with his Chinese counterpart Wang Yi.

"In general, Russia-China cooperation is one of the key factors in maintaining the international security and stability, establishing a multipolar world order," the Russian top diplomat said noting that China is a key partner for Russia on the world arena. "Our states cooperate closely in various multilateral organizations, including the UN, G20, SCO (Shanghai Cooperation Organization), BRICS (Brazil, Russia, India, China, South Africa group) and RIC (Russia, India, China trilateral forum), we are working on aligning the integration potential of the EAEU (Eurasian Economic Union) and the Belt and Road Initiative, with potentially establishing larger Eurasian partnership."

He also pointed out the efficiency of the mechanism that organizes regular meetings of the heads of governments, five commissions, which deal with addressing various branch issues of the bilateral cooperation, and rather intensive regional contacts. "Trade and economic cooperation is increasing, as well as the investment cooperation and cooperation in the high-tech spheres," Lavrov added. "We also value our military and military technical cooperation, interaction of law enforcement agencies, including countering terrorism, drug trafficking and organized crime."

In this regard, the Foreign Minister expressed hope for productive talks on the prospects of Moscow and Beijing's bilateral cooperation "in various spheres and on the global agenda.".
Brazil's Position on Trade and Venezuela Leaves It Isolated among BRICS Countries (Позиция Бразилии в области торговли и Венесуэлы оставляет ее изолированной среди стран БРИКС) / Brazil, May, 2019
Keywords: cooperation, expert_opinion, political_issues, trade_relations
Author: Patrícia Campos Mello

Brazil's stances on Venezuela and World Trade Organization reform are creating a rift among Brics countries (India, China, Russia, South Africa, Brazil) and it might threaten the group's meeting in Brasília on November 13 and 14.

When it comes to Venezuela, it's 4 to 1 with Brazil on the losing end: China, Russia, South Africa, and India oppose the position of Brazil, which has aligned itself with the United States.

Contrary to Brazil, none of these four countries recognize the government declared by interim president Juan Guaidó. All of them oppose any extreme intervention.

"The Brics have always been an arranged marriage, in which the countries had nothing in common, but they tried to make it work," said ambassador Rengaraj Viswanathan, ex-director of Latin America in India's Ministry of Foreign Relations.

This week Brazil refused to sign a declaration suggested by India that completely rejects the proposed World Trade Organization changes by the United States. The USA wants to change the special treatment afforded to China and Indian within the World Trade Organization.

"With the foreign policy proposed by Bolsonaro in Brazil, the differences have become even more accentuated. Bolsonaro does not have any interest in India or South Africa and is also ambivalent in his relations with China. There is no interest in an alliance with non-western countries, given that he wants to promote Brazil as a Western Christian country aligned with the USA," said Viswanathan, who served in Venezuela and Argentina.

According to government employees, the Brazilian government wants to avoid at all cost that Venezuela becomes a topic among Brics, and concentrate on issues like technology, digital innovation, combating terrorism, and money laundering. However, it will be difficult to ignore the elephant in the room.
BRICS Not Currently Discussing Expansion, But Will When Members Ready - Russian Diplomat (Российский дипломат: В настоящее время БРИКС не обсуждает расширение, но обсудит когда члены будут готовы) / Pakistan, May, 2019
Keywords: cooperation, expert_opinion, political_issues, trade_relations
Author: Umer Jamshaid

The BRICS nations are not in talks at the moment about adding new members to the group but will discuss it when the parties are ready, Head of BRICS Office at Russia's Ministry of Foreign Affairs Mikhail Kalugin told Sputnik

WASHINGTON (UrduPoint News / Sputnik - 16th May, 2019) The BRICS nations are not in talks at the moment about adding new members to the group but will discuss it when the parties are ready, Head of BRICS Office at Russia's Ministry of Foreign Affairs Mikhail Kalugin told Sputnik.

"The issue of expansion should be consensual. Five countries must be prepared for this. When they are ready, naturally, this question will begin to be discussed. But now it is not being discussed," Kalugin said on Wednesday about the admission of new members to BRICS.

The BRICS countries want to invest in the development of the five countries' cooperation but must first work out what is possible, he added.

"You can look at the New Development Bank. While it consists of five founders and it intends to invest in the BRICS countries.

But it was created with potential to further expand, and lend to other countries in the developing world and emerging economies, but I think that in the coming years we will see some new steps in this direction," Kalugin said.

BRICS is an association of five developing economies - Brazil, Russia, India, China, South Africa which comprise over one-third of the world's population.

Kalugin spoke at the "Doing Business with the BRICS" Conference organized by the Eurasia Center and the Eurasian Business Coalition.

The seventh annual conference brought together various experts and officials from Brazil, Russia, India, China and South Africa seeking to expand trade, direct investments and business opportunities, as well as open communication.
Brazilian Foreign Policy Returned To Monroe Doctrine Of Alignment With US - Ex-President (Экс-Президент Бразилии: Внешняя политика Бразилии вернулась к доктрине Монро под управление США) / Pakistan, May, 2019
Keywords: cooperation, expert_opinion, political_issues
Author: Muhammad Irfan

PORTO ALEGRE (UrduPoint News / Sputnik - 15th May, 2019) The Brazilian foreign policy under incumbent President Jair Bolsonaro is in fact a return to the Doctrine Monroe of the country's alignment with the United States, former Brazilian President Dilma Rousseff told Sputnik.

"What characterizes Brazil's foreign policy is, first, that it is not new, this is a policy of strict alignment with the United States, a kind of Brazilian return to the doctrine that the United States applied in the 19th century in Latin America, the Monroe Doctrine, or [viewing] Latin America as backyard of the United States," Rousseff said.

According to the former Brazilian president, at some moments of its history Brazil was able to overcome this policy, but the policy of Bolsonaro is another return to the doctrine.

"One can see submissive alignment [with the United States], and in some cases even contempt for the country's sovereignty," the ex-president noted.

Rousseff believes that such policy damages Brazilian relations with the international organizations that provide alternatives to the pro-Western political course.

"I think that BRICS [Brazil, Russia, India, China and South Africa] looks more like RICS [without Brazil] now, because Brazil has been left behind thanks to this absolutely conservative and US-oriented policy," the politician stressed.

Rousseff pointed out the need to develop Brazilian relations with other BRICS countries.

Rousseff was removed from office in August 2016 after the parliament accused her of misusing public funds at the request of then Vice President Michel Temer, who subsequently faced charges of corruption.
Investment and Finance
Investment and finance in BRICS
Brazil Fixer-in-Chief Heads to China to Mend Partnership (Бразильский главнокомандующий направляется в Китай для налаживания партнерства) / United States, May, 2019
Keywords: cooperation, political_issues, trade_relations
United States
Author: Samy Adghirni, Simone Preissler Iglesias

Brazil's vice-president lands in Beijing on Sunday on a mission to patch up wounds caused by President Jair Bolsonaro's lacerating anti-China rhetoric.

General Hamilton Mourao will spend five days in China rubbing shoulders with some of the most powerful leaders in the country, culminating in an audience with President Xi Jinping, in an effort to shore up the relationship between the two emerging market giants. Bolsonaro himself is due to visit later this year, while Xi is due to visit Brasilia in November for the BRICS summit.

China -- Brazil's most important trading partner for the past decade -- remains a sensitive subject in the Bolsonaro administration. While Mourao and the other business-orientated members of government favor maximizing engagement with the Asian giant, Bolsonaro and his more radical appointees view China with a high degree of suspicion, as a predatory economy that wishes not merely to invest in Brazil, but to own it.

"The Chinese can buy in Brazil, but they can't buy Brazil," the president said at a breakfast with journalists on 5 April.

Still, in comparison with his pre-election criticism of China as "heartless", Bolsonaro in office has dialed down his anti-Beijing sentiment. Mourao's visit is part of an effort to reset that relationship.

"The Chinese understand that Mourao plays a central role in toning down Bolsonaro's rhetoric," said Oliver Stuenkel, a BRICS specialist at the FGV business school. "They know that the Mourao-China relationship will be fundamental."

Speaking to reporters earlier this week, Mourao recognized the need to balance the Bolsonaro administration's desire to pivot towards the U.S with practical considerations of China's economic significance.

"The U.S. are the champions of democracy and freedom and our government has left it very clear what this represents," the vice-president said. "But on the other side we have to be sufficiently pragmatic to understand the importance of China for Brazil's economic development."

Trade Deals

Trade talks will dominate his agenda. Exports to the Asian giant reached a record $67 billion in 2019, with a $30 billion surplus in Brazil's favor, according to Brazil's Economy Ministry. Chinese investment in Brazil reached almost $134 billion between 2003 and 2018, Brazilian government figures showed.

While the current trade war between the U.S and China may offer Brazil some short-term gains, particularly for its agricultural sector, the downsides outweigh the benefits, according to Renata Amaral, a foreign trade analyst at Barral MJorge consultancy. "In truth this war is no good for anyone," she said.

Mourao said that Brazil is monitoring the situation "critically and cautiously".

From the Chinese perspective, Beijing is looking for Brazil's formal support for its "Belt and Road Initiative" -- the signature global infrastructure megaproject of the Xi administration. Asked whether Brazil might sign up to the program, Mourao said that any agreement would have to be approved by Bolsonaro in the second half of the year.

After trips to the Great Wall of China and the Shanghai stock exchange, Mourao will meet President Xi, in a clear sign of Brazil's importance to China. "The visit of vice-president Mourao will reinforce mutual political confidence, deepen our friendly cooperation and add new dimensions to our strategic partnership," Geng Shuang, a spokesperson for the Chinese Foreign Ministry, said.

With Beijing both uncertain about the direction of Brazilian foreign policy under Bolsonaro and eager to strike deals on infrastructure and food security, it makes sense for the Chinese to roll out the red-carpet for Mourao, according to Hussein Kalout, a specialist in foreign policy and a researcher at Harvard.

Brazilian States

While the federal government remains ambivalent about its relationship with China, some of Brazil's powerful state governors are seeking to develop their own relationship with the Asian country. One of them is Carlos Massa Ratinho Junior, the governor of the southern state of Parana, who traveled to China recently to discuss agriculture and railroad projects.

"We're open to talk with any country that wants to and understands that the state of Parana is the best to place to invest in Brazil," the governor said in an interview, adding that his actions did not conflict with the federal government's stance towards Beijing.

But in a sign of the domestic pressure Bolsonaro is under not to abandon entirely his skeptical attitude to China. Luiz Philippe de Orleans e Braganca, the vice-president of the lower house's foreign affairs committee and a lawmaker from Bolsonaro's own party, said the government should set limits to the partnership.

"It's good to talk to China, but it depends what is being discussed," he said. "For example, the 5G network set up by China is dangerous because it will give the Chinese more information about Brazilian citizens than the Brazilian government."

(A previous version of this story incorrectly stated that Mourao lands in Shanghai on Sunday. In fact he arrives in Beijing)

— With assistance by Dandan Li, Murilo Fagundes, and Mario Sergio Lima
Anti-Moscow Sanctions Have No Impact On Cooperation Of BRICS Countries - Russian Diplomat (Российский дипломат: Антимосковские санкции не влияют на сотрудничество стран БРИКС) / Pakistan, May, 2019
Keywords: mofa, cooperation, quotation
Author: Muhammad Irfan

WASHINGTON (UrduPoint News / Sputnik - 16th May, 2019) Western sanctions against Russia have no effect on the cooperation between the BRICS nations, Head of BRICS Office at Russia's Ministry of Foreign Affairs Mikhail Kalugin told Sputnik.

"The sanctions do not affect the cooperation of the BRICS countries. Because this is a five-sided cooperation - we do not impose sanctions against each other. The issue of sanctions has to do with those who imposed sanctions against Russia. But there are no sanctions against BRICS," Kalugin said on Wednesday.

Kalugin pointed out that BRICS leaders firmly advocate that economic sanctions should only be imposed with the consent of the UN Security Council.

This is our foundation and this is what BRICS values, he added.

Kalugin also said they do not see any pressure on the member countries over their cooperation with Russia.

"I think that BRICS as a whole and each BRICS country individually is able to withstand any sanctions pressure. It seems to me that the case of Russia shows that no matter what sanctions are imposed against us, bypassing the UN Security Council, they do not achieve their goal," he said.

In 2014, relations between Russia and the West deteriorated over the former's alleged involvement in the Ukrainian conflict and Crimea's reunification with Russia following a referendum. The United States and the European Union have since imposed several rounds of sanctions on Russia's energy, banking, defense and other sectors, as well as on a number of Russian officials. Moscowhas repeatedly denied the allegations and reacted with countermeasures against the Western nations that targeted it with sanctions.
OPINION: Socio-economic growth of BRICS aviation (МНЕНИЕ: Социально-экономический рост авиации БРИКС) / South Africa, May, 2019
Keywords: expert_opinion, investments
South Africa
Author: Javed Malik

JOHANNESBURG - To most people the "sky is the limit", but to those who love aviation "the sky" is their home and there is no limit. The BRICS Regional Aviation Working Group, which I lead, is now at a dynamic stage of development and at the BRICS Business Forum, the majority of the countries involved - Brazil, Russia, India, China and South Africa - emphasised the importance of growth and business opportunities in the aviation sector.

However, red tape hurdles exist that hinder this sector.

Air travel needs to be made easier and more accessible, with better visa policies to boost the sector and promote growth.

To enable this a united sky policy for BRICS countries is needed with one trade policy, one currency and one passport.

BRICS member countries said they were eager to invest in aviation.

A milestone was achieved and a memorandum of understanding was signed by BRICS transport ministers on July 22 last year for mutual benefit to bolster the regional aviation sector.

An implement framework was designed to support co-operation for BRICS countries to integrate the aviation industry.

The resolution was passed by a house full of passionate aviators.

Four projects were adopted and divided into BRICS Aviation Working Group countries, where each country will lead one project. A way forward was established.

I am most confident that the BRICS Aviation working group will make rapid progress. This confidence comes from knowing that I have a team that is committed and dedicated.

We took the first step to a right direction and it complements our Open Sky Policy in Africa and free trade zone policies.

The BRICS aviation resolution is important to South Africa as it creates a runway for economic opportunities and the creation of jobs to take off.

South Africa needs growth levels multiple times faster than the forecast to meaningfully reduce unemployment, with about a quarter of the labour force currently out of work.

The International Air Transport Association forecasts a 5.9percent year-on-year growth in African aviation over the next 20 years in the fastest-growing global region, with passenger numbers expected to increase from 100million to more than 300million by 2026.

To create local jobs, the South African Skills Development Act recommends that there should be a continuous platform for youth and training academies as regards the defence and aviation sector.

All African airlines need to position themselves to take advantage of this growth outlook and compete more effectively to become profitable.

In the coming years we will see more investments coming to South Africa in terms of job creation and B-to-B Corporations.

It sounds like a long walk to economic freedom.

But it is said in China: "If you have a 1000-mile journey, you need to take the first step".

The message from President Cyril Ramaphosa, who is striving to attract $100billion (R1.41trillion) in investment to the country, is to tell the world SA Inc is open for business.

But I have no doubt that South Africa will achieve the target before the expected time.

Javed Malik is chairperson of the BRICS Aviation Group and co-founder and the chairperson of Cobra Aviation Group.
Russia Hopes BRICS' Bank To Issue Bonds In Rubles - Russian Diplomat (Российский дипломат: Россия надеется, что банк БРИКС выпустит облигации в рублях) / Pakistan, May, 2019
Keywords: mofa, ndb, quotation, economic_challenges
Author: Fahad Shabbir

Russia is hopeful that the BRICS New Development Bank (NBD) will be issuing bonds in rubles, Head of BRICS Office at Russia's Ministry of Foreign Affairs Mikhail Kalugin told Sputnik

WASHINGTON (UrduPoint News / Sputnik - 16th May, 2019) Russia is hopeful that the BRICS New Development Bank (NBD) will be issuing bonds in rubles, Head of BRICS Office at Russia's Ministry of Foreign Affairs Mikhail Kalugin told Sputnik.

"Our new development bank, created by BRICS, is exploring and has already started issuing its bonds in national currencies. In NDB there were several bond issuances - this is also a step towards the development of the mutual settlements in national currencies. When the bank receives national currencies and then reinvests the received currencies into the economies of the BRICS countries. We hope such bonds will also be made in rubles," Kalugin said on Wednesday.

The New Development Bank was established by BRICS in July 2014 to finance infrastructure and sustainable development projects both within the BRICS and in developing countries.

Kalugin spoke at the "Doing Business with the BRICS" Conference organized by the Eurasia Center and the Eurasian Business Coalition.

The seventh annual conference brought together various experts and officials from Brazil, Russia, India, China and South Africa seeking to expand trade, direct investments and business opportunities, as well as open communication.
Regionalism in Global Governance: Revisiting the R20 Paradigm (Регионализм в глобальном управлении: пересмотр парадигмы R20) / Russia, May, 2019
Keywords: ndb, research, expert opinion, economic_challenges
Author: Yaroslav Lissovolik

Earlier this year the Valdai Club advanced an initiative to strengthen the global governance framework via creating a platform for cooperation among regional integration arrangements, regional development banks and regional financing arrangements. The main rationale for this idea was the need to promote greater horizontal coordination among the various regional arrangements, while at the same time improving the cooperative linkages between regional and global multilateral institutions. The G20 may be seen as the optimal vehicle for promoting such cooperation, with the new framework of regional cooperation designated as R20 (regional twenty) that brings together the largest regional players across the world economy.

In effect, the R20 is to bring together the regional institutions where G20 countries are leading members1. The regional integration arrangements that would feature within this platform could include Mercosur (Brazil and Argentina being members of G20), ASEAN (Indonesia), EU, GCC (Saudi Arabia), Eurasian Economic Union (Russia), etc. The regional financing arrangements could include the Chiang Mai Initiative Multilateralization (CMIM), the Eurasian Fund for Stabilization and Development (EFSD), European Stability Mechanism (ESM), BRICS CRA, Arab Monetary Fund (AMF), etc. The group of regional development banks could in turn feature the BRICS New Development Bank (NDB), EBRD, European Investment Bank (EIB), Asian Infrastructure Investment Bank (AIIB), Inter-American Development Bank (IADB), Eurasian Development Bank (EDB), African Development Bank (AfDB). etc.

The R20 is not meant to be another layer of bureaucracy or regulation that encumbers the operations of the G20 or global governance institutions. On the contrary, it is designed to be a platform that brings together existing resources to act as a supporting structure between the layer of global institutions and regional and national layers of governance via creating additional channels of communication among the disparate segments of the world economy. The mandate of R20 is of course not to challenge or override global institutions, but to fill the voids in coordination among international institutions to the benefit of regional cooperation and the strength of global international institutions.

Importantly, the introduction of an R20 regional layer of coordination is consistent with the principles of G20 operation that are in part predicated on the regional groupings of members used in the selection of G20 rotating presidency. In accordance with the current framework of G20 operations, "the president is chosen through a system of rotation. To this end, the 19 member states of the G20 (the 20th member being the EU as a whole, which is not part of a country group) are divided into five groups, consisting of a maximum of four states. The country groups are predominantly organized on a regional basis: that is, nation states from the same region are usually placed in the same group2".

Another important aspect of the R20 is that it could serve as an integral part of G20 outreach activities along with B20, Y20, T20 and others, with the regional neighbours of the respective G20 members being natural partners in discussions on global development issues or in the promotion of common initiatives. Regional partners in the respective regional integration arrangements may be a crucial constituency in the propagation of coordinated growth stimuli emanating from core G20 members during periods of global economic downturn.

The scope of the R20 initiative could also be expanded to cover not only regional integration arrangements and their respective development institutions, but also microregional agreements and alliances among sub-national constituencies, including national regions as well as the largest cities of G20 countries. The latter may prove to be particularly important for the future of regional cooperation across borders as more than 80% of global GDP is generated in cities according to the World Bank. According to the Global Metro Monitor 2018 of the Brookings Institution more than half the world's population now lives in urban areas with emerging economies accounting for the bulk of growth in cities' economic expansion3.

List of cities and/or their metropolitan areas in the world by GDP

The R20 tracks could hence include:

  • Cross-country regionalism: RTAs, regional development banks and regional financing arrangements

  • City/urban track for cooperation

  • Microregional/sub-national regional cooperation track

  • Connectivity tracks targeting intra-continental infrastructure cooperation

The above list may be far from exhaustive as the scope for regional cooperation in the global economy is rising in exponential terms. We note, however, that even as the growth in regional arrangements is progressing further, the scale of coordination and the role of cooperative mechanisms among regional groups and institutions leaves much to be desired. The creation of an R20 platform may serve to fill the widening gap between the dynamism in the evolution of regional institutions and the lack of their integration into the global governance architecture of the world economy.

1 Yaroslav Lissovolik, Anton Bespalov, Andrei Bystritskiy. Regional Trade Blocks as Supporting Structures in Global Governance. March 31, 2019.

2 Nancy Alexander, Dr. Heike Löschmann, Waleria Schuele. Heinrich Böll Foundation. The Rotating G20 Presidency: How do member countries take turns?

3 MAX BOUCHET, SIFAN LIU, and JOSEPH PARILLA with NADER KABBANI. Metropolitan Policy Program at Brookings. JUNE 2018.
Why investors should use active managers for Emerging Market equity (Почему инвесторам следует задействовать активных менеджеров на капиталы развивающихся рынков) / Australia, May, 2019
Keywords: research, expert opinion, investments, remerging_market
Author: Jay Kumar

Key insights

  • Global emerging markets have provided very strong returns for long term investors.
  • However, investors have to be prepared to accept higher volatility over shorter periods of 3 years and less.
  • Significant performance dispersions across regions, countries, sectors and styles factors provide substantial opportunities for active managers.
  • Smart-beta or factor strategies have delivered mixed results – while Minimum Volatility and Sustainability factor indices have delivered strong results, traditional factor indices such as Value and Growth have disappointed.
  • The level volatility and dispersion of risk factor across major countries continue to rise, reflecting greater geopolitical risks and country level policy risks.
  • Despite the rising volatility (since 2017) of EM asset class, the correlations between BRICS constituents continue to diverge.

Emerging Market equities can be a source of strong returns over the long term.

Over the long term, emerging markets (EM) can be an attractive source of uncorrelated returns for investors. The total return chart (Exhibit 1) since 2005 shows EM equity has outperformed DM, World and Frontier markets by a notable margin. Investments in EM (unhedged) grew at an annual compound rate of 8.44% in comparison to a Developed Market (DM) average of 7.31% p.a since 2005. However, it should be noted that most of this growth differential comes from the previous decade and the volatility of returns has been much higher in the most recent decade, particularly relative to the DM markets. In order to realise the long-term benefits of the asset class, investors need to take a long-term perspective and be prepared to withstand material drawdown over the shorter periods of less than 3 years.

Recent performance shows notable dispersion in constituent performance.

The current cyclical upswing in EM commenced in January 2019 when the US Federal Reserve Bank indicated it's intentions to pause interest rate tightening in the US. The fundamental backdrop for most EM countries was relatively strong, however, in 2018 investors was increasingly concerned about the impact of the USD rate tightening on capital flows and its impact on EM currencies. The change in the US rate policy significantly boosted investor sentiment towards emerging markets and led to significant institutional flows into EM equities so far in 2019 and strong reversal in performance of EM equities.

Exhibit 2 shows the 1 year returns (that end in March 2019) by regions and countries. There are three major regions in EM – Asia, Europe and Latin America and 23 nations that are part of the Emerging Market index (MSCI).

Our analysis shows the returns for regions and countries are highly diverse. Over the past year, Latin America and Asia marginally outperformed the broad index while Europe, Mid-East and Africa underperformed. Further, despite being hit by a political and economic embargo back in 2017, Qatar managed to have the highest return over the past 12 months (31.83%). Qatar was followed by India and Colombia, 15.27% and 13.72%, respectively. Turkey, Pakistan, Greece and South Africa were the worst performing countries with returns of -35.50%, -31.56%, -17.51% and -11.46%, respectively. All these countries experienced large political or debt related headwinds and significant de-ratings of their equity market.

Cyclical Performance of two major countries in EM – India and China

Emerging markets include two of the world's most populous countries – India and China. These two countries represent almost 40% of MSCI EM index weights for instance. China's weight in the index has gone from 17% in 2014 to 30% today, which is quite substantial. It is expected to rise further in the coming months according to MSCI.

Exhibit 3 provides some context on the performance of these two countries on a 12-month rolling basis. While the two returns series are highly correlated, there are periods when they diverge in performance. For instance, in more recent times (since July 2018), Indian equity markets have outperformed China by more than 10% (annualised rolling). The China-US trade war, which started in April 2018, was detrimental to the Chinese stock market as returns were the worst in a decade. Over the longer period of 10-15 years, Chinese stocks have exhibited greater volatility of 12-month rolling returns than Indian equities. The more recent outperformance of Indian equities is also interesting given it has coincided with the Indian Federal elections that is currently underway. The outcomes of the election will not be known until May 23 2019 but it is widely expected that the current BJP government led by PM Narendra Modi will return to power.

Sector dispersion has been very high over the past year; IT and Staples lead over the longer term.

Our analysis of sectoral compositions shows interesting patterns of high dispersion but also high level of persistence by IT sector over the longer term.

Exhibit 4 shows returns from GIC sectors and over various time periods. Over the past 12-month sector, performance diverged quite significantly with Energy being the highest earning sector of 18.14% and Health Care being the worst performing (-17.30%).

Over a longer term period of 15 years, Consumer Staples has outperformed all other sectors delivering an annual return of 11.93% but returns have been slowing for the sector in recent times with only 5.28% over the past 3 years and negative returns (-1.05%) over the past year.

IT sector has delivered very consistent results over the past 5, 7 and 10 year periods with returns in higher teens over these periods. That said, the last 12 months have been very volatile with the sector delivering -3.7% returns.

The Importance of Style and Risk Factors in EM

Apart from country, regional and sectoral risks, style factors can also explain part of the dispersion in returns for EM equity market constituents.

Exhibit 5 shows the style factors that have had notable impact on EM stock returns over the past 1, 3 and 10 years. Overall, the data-set shows Growth, Value and Quality factors have had most influence on EM equity returns. Over the past 1 and 3 years, Quality factors had marginally higher impact than Growth, Value or Macro factors.

Within these broad style classifications, the data shows the impact of more granular factors. For instance, over the past 10 years, Forecast 1 year revisions and Return on equity factors were associated with very strong and positive return premiums. On the other hand, Low accruals, currency (non-USD exposure), and market cap (size) were associated with negative return premiums.

The elevated level of dispersion and volatility noted across regions, countries, sectors and styles is underpinned by rising uncertainty around economic, geopolitical and country specific issues. We believe this provides an attractive opportunity for active investors to buy superior companies, countries, themes during these periods to add significant alpha in coming months and years.

Performance of Smart-beta Indices

There are various indices that are available to investors to replicate or invest in linked ETFs to capture factor-specific returns. Exhibit 6 shows the performance summary of most popular smart beta indices in EM.

The dataset shows that the MSCI EM Minimum Volatility index (minimum volatility factor) delivered the best returns over the past 12 months and indeed over the long-term (15 years). However, sustainability indices (ESG and SRI focused) which were only introduced in the last 5-10 years have delivered very strong returns over the past several years. For instance, the MSCI EM ESG Leaders ranked 1st over a 5-, 7- and 10-year periods. These performance patterns are very interesting as they show traditional smart-beta factor indices may are losing their performance edge and no longer enjoy the following as they did several years ago.

In addition, the MSCI EM Value index ranked 2nd over the past year but was the worst performing smart-beta factor over 5-, 7-, 10- and 15-year periods.

On the other hand, Growth index was the best performing index over the 3-year period but was the worst performing over the past 12 months and second worst performing over a 15-year period.

Geopolitical risks and Policy uncertainty have underpinned rising volatility in EM

Investors have been very wary of the geopolitical and policy risks that influence EM stock markets. The uncertainty can be gleaned from the rising dispersion at every level of the market – region, country, sector and styles.

Our analysis of the absolute level of volatility also points to the rising uncertainty.

Exhibit 7 presents the stock market volatility data on the broad MSCI EM Index as well as the major constituents - BRICS nations (Brazil, China, India, Russia and South Africa). The data shows volatility for Global EM has subsided considerably since GFC (currently half of what it was in 2009) to 10.63% annualised (AUD)which is in the 3rd quartile of its historical volatility average. More importantly, the data shows the EM asset class volatility on a rolling 12-month basis bottomed in early 2017 and has been steadily rising since then.

Further, the dataset demonstrates that over the period of March 2004 to March 2019, all five BRICS countries have exhibited higher rolling volatility than the overall Emerging Markets. Although volatility levels have converged since the GFC of 2008, volatility in Brazilian and Russian equity markets have been significant and divergent since 2015. Brazil's volatility is currently the highest out of the group and has reached its GFC levels at 36.27%. It is currently in the upper first quartile of its history. In addition, the volatility of Indian equity market has been steadily rising since 2017. The rising volatility levels in itself are not the reason for avoiding investment in EM. Investors should be cognizant of the underlying shifts in risk patterns and where possible allocate their money via active managers that have skill in navigating through uncertain times.

Despite the rising macro-uncertainty in EM, correlation between BRICS countries has subsided

Generally, a rising volatility coincides with rising correlation. When this pattern of behaviour is observed across markets or asset classes, investors need to be wary of diversification breakdowns within portfolios. However, the current behaviour in EM and in particular BRICS markets is unusual.

The 36-month rolling correlation of BRIC countries to the overall MSCI EM Index is shown in Exhibit 8. Correlation of Chinese equity market to the EM market has been steady at 76% with a very tight historical range. This is not a surprise because China makes up more than 20% of the EM equity market.

Correlation of Brazilian and Russian equity markets has subsided significantly since 2015. Overall, country level correlation dispersion outside the BRICS still exists which means investors with well diversified exposures across broader emerging markets can benefit from country level diversification.

A notable trend is that Indian equity market's correlation has been steadily rising since 2015. This most likely reflects its growing importance within the region, as well as increased flows in the Indian equity market since Prime Minister Narendra Modi took office in 2014. Over the past 6 months however, correlation has been rolling over and it remains to be seen if this will be extended post elections that are currently underway.


Despite the rising dispersion and volatility in Emerging market equities, long term investors can harvest superior returns from this asset class. Notable dispersions across regions, countries, sectors and styles mean active managers are better placed to take advantage of stock, country and sector level anomalies and position the portfolio for strong outperformance in the coming years. Smart beta strategies based on MSCI factor indices have had mixed success in the asset class. While Minimum volatility and Sustainability factor strategies have done well, traditional Value and Growth indices have struggled. Rising geopolitical and individual country policy and political risks mean volatility for the asset class will continue to rise. We believe active managers are best placed to navigate through uncertain times and take advantage of opportunities for investors.


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This material is based on information that is considered to be reliable, but Foresight Analytics makes this information available on an "as is" basis without a duty to update, make warranties, express or implied, regarding the accuracy of the information contained herein. The information contained in this material should not be acted upon without obtaining advice from a licensed investment professional. Errors may exist in data acquired from third party vendors, and in coding related to statistical analyses.

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Waterfront theatre school off to Russia for BRICS drama festival (Театральная школа Waterfront отправляется в Россию на драматический фестиваль БРИКС) / South Africa, May, 2019
Keywords: social_issues
South Africa

Cape Town – The Waterfront Theatre School (WTS) in Cape Town is headed to Russia this month to take part in the third BRICS Countries Drama Schools Festival. A group of students from the performing arts school has again been invited by the University of Theatre Arts in Moscow, with the support of the Presidential Grant Fund, the Ministry of Foreign Affairs of the Russian Federation and the Moscow Culture Department, to take part in the festival that runs from May 27 to June 6.

The festival seeks to examine how Performing Arts Colleges in BRICS countries explore typically Eurocentric styles of theatre while maintaining cultural relevance and resonance.

This year the festival topic is Greek Theatre and the chosen text is Oedipus Rex. All participants are required to prepare extracts from the text for performance.

The Waterfront Theatre School is focusing on the choral scenes in Oedipus Rex.

The conceptual idea for their performance is to relate traditional African practices of worship, prophecy, protest, celebration and mourning to the ancient classical text.

The focus is on Xhosa traditions and this year the WTS ensemble cast will comprise eight students.

This is the third time that the Waterfront Theatre School is attending the festival.

The main event will take place in the impressive 1 500-seater amphitheatre in Zaryadye Park, a contemporary space in central Moscow close to Red Square.

Festival audiences are able to watch rehearsals and performances and this year it's anticipated that more than 100 000 people will attend.

"The festival provides an amazing opportunity for us to share our culture and to be part of the global community," said WTS founder and managing director Delia Sainsbury.

"The relationships fostered between the various institutions taking part is hugely beneficial to broadening the international network and truly transforms the experiences of the students," she added.

Other institutions taking part this year include the University of Beijing, the University of Delhi and the Casa de Artes Das Laranjeiras in Brazil.

This year the festival will be joined by delegates from Armenia and Georgia.

The project has also received support from the Western Cape Department of Arts and Culture, Proud Partners, the South African National Dance Trust and the MLahann Trust.
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