Why emerging market equities have the world’s attention.
. Brazil . Russia . India . These four nations have some of the fastest-growing
economies on earth and are becoming drivers in the world economy. In the coming
decades, they may command as much attention as the China U.S.,
and other “heavy hitters” … or more. Japan
The future aside, we know one thing about the
BRIC nations and other emerging markets: collectively, stocks in these
countries have outperformed
stocks for the last 20 years. U.S.
During this past decade alone, the MSCI Emerging Markets Index brought a total return of 102.4% while the S&P 500 posted a total return of -10.0% (-24.1% before dividends). Across the 1990s, the S&P 500 produced a total return of 432.0% - pretty impressive. Yet the MSCI Emerging Markets index posted a total return of 2408.6% for that decade.1,2
Great volatility … but also great
Look at last year’s returns. In
2009, the benchmark index in
Look at the last decade. The Dow and the S&P 500 underperformed in the 2000s compared to previous decades. How did benchmark indices in the BRIC nations do?
Are you sitting down?
BRIMCK? Some economists would modify BRIC to BRIMCK, arguing
Mexico and belong
in this collective powerhouse. The key market indices in South Korea Mexico and respectively advanced
44.87% and 49.65% last year.3 South Korea
The (corporate) opportunity of a lifetime? Wall Street bulls see wisdom in giving more and more weight to the BRICs in portfolios. They draw a line between the impressive, sustained growth of these nations to higher returns and rising demand for capital. They look at these nations and see a rapidly growing middle class and upper middle class and a corresponding rise in spending … translating to a momentous opportunity for global companies who leap into the right place at the right time … translating to great corporate profits down the line.
Of course, this vision assumes that the BRIC nations will a) keep economic policies in place that drive growth, b) avoid political and social upheaval, and c) escape the worst of global economic crises.
A new alliance?
A decade ago, “BRIC” was simply Wall Street
slang – a term coined by Goldman Sachs economist Jim O’Neill. Today, the BRIC
nations appear to be heading toward some form of coalition. In recognition of their
power, BRIC leaders have scheduled annual economic summits – the first one was
Russia in 2009, the 2010
summit is in .
The presidents and prime ministers of these countries entered into dialogue to
determine how their economies can work together and maintain their fantastic
In sum, the BRIC nations are responsible for about 15% of global GDP, and about 40% of the gold and hard currency reserves on earth are in their possession.4
Does the BRIC demand your attention? Some financial consultants think that any well-diversified portfolio should have a toe (or a foot or a leg) in emerging markets – the gains of recent years are simply too spectacular to ignore. Others counter with the argument that past performance is no guarantee of future results, and cite the remarkable volatility that can affect the stock markets of these nations. If you are interested in learning more, have a chat with the financial professional you know and trust.
1 realclearmarkets.com/blog/Omnivest_1-4-10.pdf [1/4/10]
2 cnbc.com/id/34645043 [12/31/09]
3 cnbc.com/id/34643111 [12/31/09]
4 nytimes.com/2009/06/17/world/europe/17bric.html?_r=1&pagewanted=print [6/17/09]