Time to dump the Brics for the Mints?

Short-term performance of funds investing specifically in the Bric economies – Brazil, Russia, India and China –has been poor. The Allianz BRIC Stars fund is down 26 per cent across three years, but over five years the fund is up 63.1 per cent, according to FE.

Manager Kunal Ghosh says that while the Brics have had a challenging time, in terms of GDP growth, the Mint and Bric economies are not that different.

He adds: “Every Bric country has a global competitive advantage. At the beginning of this century, when the Bric story started, China offered plenty of labour to facilitate demand from the western world; India offered technical support, supporting the technological growth from the western world and Brazil and Russia offered commodities.” Mr Ghosh adds that what they struggle to find with Mint regions is what they offer that is unique.

He adds: “Starting with Mexico, its competitive advantage was always the same story of cheap labour, but ultimately it cannot compete with China. The labour productivity is significantly lower.”

The manager adds that Indonesia has been growing, but there are no big, competitive companies coming out of this country. He adds: “Nigeria is embroiled in socio-political crisis and that is going to be the biggest headwind to its growth.” Meanwhile Turkey does not have a big enough population for a meaningful consumption story and so will not make a big impact on the performance of the Mint region.

However, Julian Mayo, co-chief investment officer at Charlemagne Capital, says that he sees opportunities in the Mint region. He explains: “Mexico and Indonesia could do very well this year. Mexico is in the middle of energy reforms and Indonesia has various reforms already. The key thing to Indonesia is its increased competitiveness as a result of the fall in the rupiah over the last nine months.”

In the Charlemagne Magna New Frontiers fund, there is a 9.4 per cent exposure to Nigeria. Mr Mayo adds: “Nigeria is a very ungeared market and is an area with a clear runway to growth going forward. It is a classic early stage economy and you want to be looking at the basic necessities, telecoms, the banking industry, food sector.”

Mr Mayo still sees opportunities in the Brics, but notes: “Brazil is going to be a slow-growing economy, but it could surprise on the upside. It’s probably going to take until next year until Brazil starts to improve after the elections, as I think there will be some reforms implemented.” He adds that the depreciation of the real by 35-40 per cent in the last couple of years has helped Brazil become more competitive than it was. He concludes: “Brics have underperformed and there is a possibility that these will perform better going forward.”

However, for Mr Mayo, acronyms do not really help investors. “I have never understood the point of Brics and Mints, because they have several things in common and several they don’t have in common. For us as stockpickers, they are not very useful.”

Investment Quorum chief investment officer Peter Lowman agrees that acronyms may have been “exhausted” by now. He says: “When looking at emerging market economies, there are pockets of good and bad, and opportunities are being found at a stockpicking level.”

When looking at the Bric economies he notes: “You’d be better off investing in India and leaving out the rest. It is the same with the Mint nations. Out of those four, three have got big issues, with their economies plummeting a bit recently and so you may select Mexico out of a bad bunch, which is more connected with what is going on in the US economy.”

Gavin Haynes, managing director at Whitechurch Securities, believes that stockpicking will be key to performance as opposed to trying to position your emerging market exposure based on top down economic prospects. He says: “Given the difficult time Bric economies have had and how these markets have fallen out of favour with investors, cheap valuations in these markets could provide some of the best opportunities for stockpickers.”

He adds: “The shift of economic power towards emerging economies will undoubtedly be dominated by the scale of the Bric economies. However, Mint offer the potential to replicate the growth that has been achieved by Bric economies over the past decade.”

Joanne Ellul is a freelance journalist