What does travel through the diverse forests of Brazil, Russia, India, and China (the so- called “BRIC” nations) reveal?

Though the BRICs are key sources of world growth, they also reflect global growth patterns. BRIC territories do not possess sufficient independent firepower to propel the overall world economy significantly and permanently forward. In recent months, BRIC stocks have declined substantially. This BRIC equity weakness warns of current and further upcoming economic slowdowns not only in those countries, but sluggishness and even downturns elsewhere.

BRIC currency trends relative to the US dollar interrelate with this story told by equity playgrounds. Recent weakness in these BRIC foreign exchange cross rates reflect and confirm the fragility in BRIC stock benchmarks.

The key point is that Chinese currency appreciation, which had been slow yet persistent, now seems to be taking a breather. In the context of China’s substantial bear trend in equities, and given China’s status as a major exporter nation with massive foreign exchange reserves (a large bankroll to solve minor problems), what does this currency “non-appreciation”/modest depreciation against the US dollar suggest?

It indicates difficulties facing China finally have become quite significant- and more substantial than most China watchers recognize. In other words, China’s economic challenges (such as inflation, rising wages, weak property prices, substantial local government debt) may have grown to become a “fairly big problem”, even if Chinese authorities have not confessed to this. However, China did cut its reserve requirement ratio recently. So even if China’s stock marketplace is not an ideal benchmark for assessing “the overall Chinese economy”, at some point its stock price level and trend, when interpreted alongside other variables, can identify (coincide with) noteworthy Chinese economic problems.

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The House of BRICs – How Solid (12-13-11)