Hope never dies, particularly not when it can give the stockmarket a boost in uncertain times. When the financial crisis rolled out into a general economic downturn last year, the theory of "decoupling" raised its head, offering the prospect that China and other big emerging economies would be able to continue to grow in such a way as to keep the global economy afloat. That proved not to be the case as the BRICs (Brazil, Russia, India and China) felt the strain of sharply falling external demand and the tightening of capital flows.
But now it is back, buoyed largely by the not-as-bad-as-we-feared data coming out of China. Goldman Sachs, which first coined the BRIC acronym, has forecast that China will romp back into double-digit growth in 2010 and that its health plan will be a big driver of world recovery in the coming years as Chinese people stop saving in case they fall ill and spend their money on consumer goods instead. Meanwhile, Brazil will, according to the optimists, soon pull out of a short-lived recession, India will benefit from a stronger post-election political situation and Russia will be all right as sunnier times send up oil and gas prices.
All very comforting, on paper at least, and boosted by an improved forecast for 2009 growth from the World Bank. But, looking at the main source of the optimism, China, reality is rather less alluring. It would be amazing if the total of more than $1tn that has been thrown at the economy in fiscal and monetary stimulus this year does not produce a stronger growth figure for the second quarter than for the first. Given the slice of the immensely enlarged volume of bank loans that have gone into corporate treasuries and the stock market, it would be surprising if companies do not look healthier and the Shanghai exchange index does not retain the increase seen this year – helped by a ban on new share issues that is only now being lifted.
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