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BRICs and bubbles

​​​​​​​​​​​​​​30 Jan 2014

BRICs and bubbles

JLL President and CEO draws important lessons from Davos 2014.

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The BRICs got a hard time at this year's annual WEF summit in Davos. Fear that the US Federal Reserve's forthcoming tapering of Quantitative Easing will impact emerging markets hardest was compounded by talk of a potential credit crisis in China. But JLL CEO Colin Dyer leaves the Swiss mountains with more reasons to be confident than cautious.

"BRICs have had a challenging couple of years and the markets will always react to this morning's headlines with the press of a button. But business people are much more robust about the developing world in general - they're still committed to emerging markets as a source of long-term growth."

Dyer anticipates renewed confidence in India, having gained a sense in Davos that this year's general election will deliver political clarity. Meanwhile he found little fear over a credit bubble in China.

"People have been wondering a little bit about it but the general sense is that the government is very effective at handling the economy - especially the banking sector - so they can put the brakes on at the right time.

"Non-bank debt is an unknown but it's not of particular concern because China has such firepower and reserves and the growth is there. I don't want to appear Pollyanna-ish but on a grand scale optimism outweighs negativity at the moment."

Davos commentators widely reported an atmosphere of renewed confidence last week after five years of crisis management mode. Dyer too found general consensus that the potential landmines of the Eurocrisis, US fiscal cliff and China's change of leadership are gone, so it was a disaster of a different nature that left a lasting impression on him.

"One of my most fascinating meetings was with Naheed Nenshi, Mayor of Calgary, Canada. The worst floods in a century hit Alberta shortly after the mayoral elections, which he won resoundingly. His insights into disaster management are unique."

Mayor Nenshi has embarked on the largest public works project in Canadian history since floods ravaged Alberta last June. At Davos he reflected on the scale of the task, contributing to a wider debate about city regeneration. It was a theme of this year's summit that Dyer naturally welcomes:

"I've been coming to Davos for seven years and the focus on city and city governance has grown and grown as the proportion of the world's population living in cities grows. And of course real estate has been at the heart of every banking crisis to date, so it's only right it should get far more prominence."
​The contribution of real estate to the development of market bubbles was the subject of a Davos session chaired by Dyer. The panel consisted of a Nobel-winning economist and several heads of central banks.


"This was a Davos highlight for me. One definition of a bubble surprised and intrigued me - a 'mass psychosis' where a herd instinct pushes up prices as investors jump on the bandwagon.

"There was agreement amongst the panel on how clearly they can see bubbles coming. Yet when they sounded the alarm in 2004 people thought they were crying wolf because the bubble took longer to materialise than anticipated. But those same banks now have real tools, real economic levers to pull, next time they see an asset bubble coming."

Dyer describes those Davos insights as critical, especially for his next trip to Asia and the next inevitable question from a journalist about a credit bubble in China.