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July 2, 2013

What are ‘BRIC’ Investments?

Before 2001 the term that was used for up-and-coming nations, those with economic growth that was seen as being excellent for investors, were called ‘emerging markets’. Goldman Sachs coined the acronym BRIC  at that time, which stood for Brazil, Russia, India and China. In 2009 those 4 countries accounted for more than 40% of the world’s population and 25% of its GDP.

Since then, these 4 countries have been seen as a type of 2nd tier investment, right after the more developed markets in the West. Like all investments, they’re not a sure thing by any means and investors definitely have to know where to allocate their emerging-market assets and how to do it, being fully aware of the risks before they do of course.

Let’s take a look at the four nations that were used to coin the BRIC  acronym.

  1. Brazil. With Latin America’s largest economy, due mostly to the fact that Brazil is a major energy exporter, their market rises and falls with the fortunes of the oil market. Brazil has a tremendous amount of crude exports and, with the recent find in the Atlantic Campos basin, their destined to have more soon.
  2. Russia. While they have struggled in their transition from a planned economy to a more Western free market system, Russia still has quite a bit of oil and other commodities to offer. They have done an excellent job servicing their foreign debt, building their central bank reserves and rising to the world’s eighth largest GDP.
  3. India. One of the global leaders in service-based industries and manufacturing, a tremendous amount of tech and customer support jobs have been outsourced to this crowded country. With their  English speaking, highly educated, low-wage workforce, India has created for itself a large middle class.
  4. China. As the biggest member of the BRIC  in both membership and population, China is well-positioned to fund its capital cost for quite a few years.  Many multinational companies in the West are keen on developing partnerships with China’s government and the rest of the manufacturing base and Asia.

Experts believe that these 4 BRIC nations  are going to  continue to dominate the landscape of emerging markets for at least the next few years. Of course their success is also tied in to the more established markets of North America, Europe and Japan, where there is a significant demand for their products and services.

As it stands, all 4 of these nations could fall below the growth rates that they have had in the last decade and still be above many other Western nations. For example, it is it estimated that China’s economy is going to overtake both Great Britain and Germany’s by the year 2015.

As with any investment it is vital that you allocate your funds wisely. While it is certainly possible that these 4 BRIC nations will  outperform their counterparts over the next 10 years, it’s not clear if their investments will do the same. If your portfolio contains between 5 to 8% allocations for emerging markets, experts advised that you should devote no more than half of that to BRIC  investments, keeping in mind that your exposure should be seen from that of a broader global equity allocation strategy.

What you need to also keep in mind is that the economic growth of these 4 BRIC nations may not actually show up in the stock market for quite a few years and, for that reason, you should consider them as long-term investments.  It might also be wise to invest in 1 or 2 key businesses rather than a broad spectrum of BRIC investments.

At the end of the day investing in BRIC  isn’t exactly low risk. You’ll need to educate yourself, properly place BRIC  investments in your portfolio and know your risk tolerance before making any financial decisions.  That being said, if you’re up for the challenge investing in a few BRICs may be an excellent idea.

Filed Under: Investments

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