BRICs Are Flying
BRICs - The term refers to four large emerging market countries that are growing very fast: - Brazil, Russia, Indian and China. While the MSCI Emerging-Market Index is up 171% since the end of 2002, the MSCI BRIC Index has surged 262%. (MSCI stands for Morgan Stanley Capital International, which also has separate indices for all four countries.
The term BRIC first appeared in Goldman Sachs paper in October 2003, “Dreaming with BRICs: The Path to 2050.” The paper predicted that by 2050, the lineup of the world’s largest economies would be toppled, with China emerging as the largest, followed by the U.S., India, Japan, Brazil and Russia, surpassing the social democracies of Europe.
The firm issued an update in 2004, an echo to this awesome prediction. Europe currently accounts for approximately 15% to 20% of most global stock indices, compared to 3% to 3.5% for the BRIC markets, but these four countries could account for 10% to 17% by 2020. Market capitalization in the BRIC economies could increase by a factor of four times or $4 trillion. While the BRICs would still be dwarfed by Wall Street, they would approach the size of Europe within 15 years. Or so the prediction goes. (Editorial comment on this will appear elsewhere in this blog.)
Altogether, the BRIC countries account for nearly half the world’s population, while their rapidly growing economies presently make up only 13% of global economic output.
What all four have in common is rapid growth, but otherwise they differ vastly. China and India are commodity importers, while Russia and Brazil export commodities, and a great proportion of their growth, especially for Russia, is the payoff from a commodity windfall. Brazil has managed to attract foreign investment and has a modern industrial base, however, Russia is burdened with an obsolete industrial apparatus, falling population and an administration that is undeniably corrupt.
Nevertheless, Russia is the world’s number one exporter of gas and its second exporter of oil. Energy-related revenues account for more than 20% of GDP, which means that high oil prices have allowed the Kremlin to ignore the need to diversify the economy. Brazil, India, and China do not have Russia’s oil and gas resources, however, lacking this advantage makes them more open to foreign investment and economic diversification.
An ETF that invests in all four is the Claymore/BNY BRIC ETF with the symbol EEB, which tracks the performance of ADRs from Brazil, Russia, India and China. Launched in August of 2006, it has a portfolio of about 70 holdings. Country breakdown is currently 50% Brazil, 30% China, 15% India, and 5% Russia.