BRIC ETF: Emerging Markets Are Riskier, But Growing Faster
The BRIC acronym, first coined by Goldman Sachs in 2001, collectively refers to the economies of Brazil, Russia, India, and China. Taken together, these countries comprise roughly 40% of the world’s population, 25% of land coverage, and 15% of GDP. These numbers may sound impressive now, but the “BRIC Thesis,” first proposed by Goldman economist Jim O’Neill, argues that this bloc is on a path to dominate the global economy by 2050, even overtaking the United States, Japan, Germany, and Great Britain. Though first posited in 2003, successive revisions by both Goldman Sachs and other research firms continue to assert this trajectory, along with signs that these developing economies are experiencing “decoupling” from current global leaders.
Brazil and Russia have a strong base in commodities, while India and China are flourishing as centers for manufacturing. India’s surge as a service economy in the past decade is self-evident. All four countrie’s governments are also playing an active role in promoting growth and restraining fiscal irresponsibility, issues that have plagued current world leaders in recent years.
Additionally, BRICs are expected to bolster global demand in the coming year, and contribute tremendously to demand growth in the coming decade. The expanding Chinese middle-class is increasing consumption of consumer products, while auto sales are rising in China and India. Brazil’s retail and housing sales continue to expand as well, but Russia’s high level of penetration has negatively affected its demand growth profile. Nevertheless, BRICs are expected to cover 50% of consumption growth in 2010.
For the retail investor looking to jump on the BRICs bandwagon, the best bet at this point is to employ ETFs. For country-specific ETFs there exist a plethora of options: iShares MSCI Brazil (EWZ), Market Vectors Brazil Small-Cap (BRF); Market Vectors Russia (RSX); PowerShares India (PIN), iPath MSCI India ETN (INP), WisdomTree India Earnings (EPI), iShares S&P India Nifty 50 (INDY); iShares FTSE/Xinhua China 25 (FXI), PowerShares Golden Dragon Halter USX China (PGJ), SPDR S&P China (GXC), Claymore/AlphaShares China Small Cap (HAO).
If your aim is to cover the entire bloc, consider iShares MSCI BRIC (BKF), Claymore/BNY BRIC (EEB), and SPDR S&P BRIC 40 (BIK). As with any ETF purchase, it is crucial to consider the allocations within each fund, as well as fees. Key factors that investors should expect to drive prices include country stability, trade barriers, export levels, monetary policies, and market interventions. Given that BRICs are still considered developing/emerging, short-term volatility can be quite high; a long-term outlook is advised.