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Goldman Sachs’s O’Neill Sees Bank of BRICS Gathering Momentum

Leaders from the world’s biggest emerging markets are moving closer toward establishing a development bank of their own, according to Goldman Sachs Asset Management Chairman Jim O’Neill. The so-called BRICS nations of Brazil, Russia, India, China and South Africa have spent the year considering an Indian proposal for a multilateral bank that would be exclusively funded by those nations and finance projects in them.

While the Chinese have been “scratching their head” about whether to support it, they may decide to if rich nations continue to prove slow in backing a shift in voting power toward emerging economies at the International Monetary Fund, O’Neill told Tom Keene at the Bloomberg Link FX Summit in London yesterday.

“The Chinese could jump ship,” said O’Neill, who devised the BRIC term a decade ago.

The U.S. has so far failed to ratify a 2010 agreement that would give more strength to emerging markets at the IMF and make China the third most powerful member. Negotiations over a 2014 shift in voting rights are already subject to disagreement over how to calculate the reshuffle.

O’Neill said China is shifting to a better “quality” of growth from a previous focus on “quantity,” and its economy will now expand between 6 percent and 8 percent.

“China are telling us they’re happy to have less growth going forward,” said O’Neill, who added he expected more reform to the nation’s economy and financial system.

Growth Slowdown

China will report this week that economic growth slowed to 7.4 percent in the third quarter, according to the median estimate of a Bloomberg News survey of economists. That would be the weakest annual pace in three years.

Turning to the euro area, O’Neill said equities in the region remain “very, very” cheap. He argued that European Central Bank President Mario Draghi sidelined the Bundesbank by persuading German Chancellor Angela Merkel to back the bond- buying program opposed by the country’s central bank chief, Jens Weidmann.

That “reduced the Bundesbank to a protest group,” O’Neill said. “Nobody has ignored the Bundesbank like that since the Berlin Wall fell.”

O’Neill said he still expects the Standard & Poor’s 500 Index to end the year at about 1500 and is confident lawmakers will strike a deal to avert the so-called fiscal cliff of $607 billion in federal spending cuts and tax increases scheduled to take effect in January unless the U.S. Congress acts. The index was at 1454.55 yesterday in New York.

O’Neill, a former chief currency economist at Goldman Sachs, said he sees the Australian dollar falling below $1.

“I think the Aussie’s days above parity are numbered,” he said. “I’d be in favor of the euro over the Aussie.”

The Australian currency was 0.2 percent higher yesterday at $1.0269 as of 5:52 p.m. London time.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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