Speculative Optimism

On the 24th of Dec 2010, South Africa was invited to join the BRIC group consisting of some of the worlds largest emerging markets such as Brazil, Russia, China and India.
China is growing at approximately 9% a year and India has an economy that is about four times the size of 
South Africa. South Africa is the world's 31st-largest economy, according to World Bank data for 2009.

One has to ask what has warranted this invitation?

SA has been extremely keen to get into this elite club for a long time, trying to explore better bilateral trade with China due to China being SA's biggest trading partner.
SA has shown poor economic growth over the years and forecasts sit at around 3% for 2011.

What has SA got to offer the BRIC nations? Is it the understanding that SA is the gateway to Africa? Because SA has the biggest economy on the African continent? It seems many international companies are trying to get into SA, one of the biggest is the 51% of Massmart bid by Walmart.

Along with this new status under the "BRIC" logo, not only do we see M&A deals but also large capital inflows into SA. International finance suggests one of the reason's why the ZAR is so strong is due to foreigners being the net purchasers of SA bonds and equity.

The JSE closed today at 31 837 , off its high but still relatively close to its all time high. With the Fed adopting its quantitative easing policy and many other developed economies trying to stimulate their economic growth it seems all the money is flowing into emerging markets. Along with the new "BRICS" status and all this optimism in emerging markets (as well as pessimism in the developed economies), one cannot deny the fact a new bubble is "emerging". Would value investors like Warren Buffet and Benjamin Graham find any value in the JSE, I think not. The appropriate term would be "overvalued" from the people at Grahamsville.

In the end, is the inclusion of SA within BRIC warranted? Are all the foreingers wrong to invest in such a slow growing economy like SA? Does the developed world see intrinsic value within SA?
Or is it all just speculative optimism...?

The Young Economist