BRIC is one of the new buzzwords and it stands for Brazil, Russia, India, and China. The term is mainly used in the investment world where a number of financial institutions are setting up so called BRIC funds to give clients exposure to just those economies and stockmarkets.
What's So Special About The BRIC Countries
- Combined they contain 43% of the world's population
- Their economies hold real economic potential looking 5-20 years into the future far more so than the west but with increased risk
- For example, India's economy grew by 6.9% in 2005 and is likely to become the 3rd largest economy in the world behind the US and China
- The Chinese economy could overtake both the UK and German economies in just 5 years
- And the key point is that as these countries develop wages go up hence giving the population more spending power to buy goods and services as well of course property
- China is on course to deliver over 1 billion new consumers to the global economy over the next 25 years
The Risks
Obviously with any developing country there are increased risks for investors. Two of the main ones we see are economic overheating and global investors getting caught up in a speculative frenzy so pushing shares to unrealistic levels. This has happened in the past and will happen again as sure as the sun sets in the west. Also note that China is growing very rapidly but it's stockmarket is actually down over the last 5 years, investing in BRICS is therefore as much about timing as successful analysis.
Best To Think Long Term When Investing
The best way to approach investing in any developing country is to think long term and expect shocks in the short term (1-3 years) such as overheating or serious market declines. It's when investors get caught up in the speculative frenzy that they normally get into trouble, buying or example at very high prices for fear of 'missing the move'.
We ourselves have been investing in some of these stockmarkets by drip feeding money in every month combined with a 10+ year outlook. A sudden shock with stock prices moving down 25% or so would not worry us at all although we would not welcome such a move. The other strategy we have for these investments is to start liquidating our positions should market participants start going wild pushing prices to unrealistic levels. In that case we would still keep a core position and look to re-enter if/when the froth blows over.
How To Invest In BRICS
- You don't have to invest directly in the country, many UK/US based financial management companies offer funds tailored to one or more countries
- Alliance Global Investors and Schroders for example have funds specifically to invest in the BRIC countries
- These fund management firms will also offer funds that invest in the individual countries so you can tailor some exact exposure, perhaps investing more in India than China
Summary
With the Indian stockmarket rising 42%, the Russian 65% and the Brazilian market 32% in 2005 it would appear that we may be heading to a situation where investors have already started to chase stock prices, although there is clearly no buying frenzy at present. But perhaps with a 10-20+ year outlook it's more important to be the stockmarkets than out, if only with a small percentage of your overall capital.
PS. Be sensible when you start to buy investment funds because many of the charges that they levy are outrageous. What we do is simple, buy most if not all of our funds through one of the Fund Supermarkets (see table below) where between 1%-5% of the initial investment can be saved. That's £100 - £500 on a £10,000 investment! It's not quite so straightforward for smokers. To qualify as a non-smoker, most insurance companies insist that you must not have“
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