Emerging Markets  

Are the BRICs still an investment opportunity?

This article is part of
Guide to investing in emerging markets

Are the BRICs still an investment opportunity?
 Credit: Wolfgang Rattay/Reuters

The BRICs is a grouping of the four largest economies in the emerging markets asset class.

The acronym is said to have been invented by Goldman Sachs as a marketing tool, which means it is not always a helpful grouping for investors.

It stands for Brazil, Russia, India and China – with South Africa sometimes included in the acronym as 'BRICS'.

Jan Dehn, head of research at Ashmore Group, calls the acronym a “sales gimmick”.

“The main common denominator for the BRIC countries is their size. But country size is no indicator of opportunity. Opportunity is a function of the price of assets relative to the underlying risks."

He asserts: “The BRICs go through ups and downs like all other countries and this gives rise to opportunities on a case by case basis.”

Unhelpful label

Gary Greenberg, head of emerging markets at Hermes Investment Management, agrees BRICs is not a particularly useful concept.

While Salman Ahmed, at Lombard Odier Investment Management, notes: “Heterogeneity and differentiation in the emerging market universe has grown over the last few years. 

“The impact and consequences of lower commodity prices is an important indication of this growing reality. Overall, label-based investing in emerging markets is over and we need to treat each country on its own merit.”

Each of the four countries have plenty of differences, they do have one thing in common – they have all been growing this year.

Dan Tubbs, head of the global emerging markets equity research and portfolio management team at Mirabaud Asset Management, explains: “GDP growth in GEM [global emerging markets] is improving due to the strengthening BRIC markets, which together account for almost 50 per cent of GEM.  

“Brazil and Russia have recently exited deep recessions, while India and China continue to exhibit stable growth.”

This suggests there are plenty of opportunities for investors who want an allocation to emerging markets in their portfolio.

Scandal ridden or new era?

Taking the first letter in the acronym, Brazil has had a fairly bumpy ride over the past few years, as political scandals often detracted from some of the investment opportunities in the country.

Thomas Smith, manager of the Neptune Latin America fund, explains: “The Brazilian investment case has transformed dramatically over the past 18 months. Back at the beginning of 2016, the market was under pressure from both international and domestic factors. 

“The Chinese economy was slowing which resulted in a precipitous fall in commodity prices, and the US Federal Reserve was beginning to raise interest rates, with the expectation of up to four hikes over the course of the year. 

“In Brazil, populist policies from the Dilma [Rousseff] government were stretching the fiscal accounts and concerns were rising over the trajectory of government debt, while the economy was mired in the deepest recession for decades – over 2015 and 2016 the Brazilian economy contracted by -7.3 per cent.”