16th January 2013
Now M. Edwards does not mince his words when it comes to many things and at Mindful Money we applaud that. His comments are reported in trade paper Investment Week.
But is he correct and does that mean that Goldman Sachs economist Jim O’Neill, who coined the term, was wrong to do so?
Mindful Money thinks there are two ways to approach this.
The BRIC term may just be a four-letter acronym, but it has proved an extremely powerful one to describe the shift in global economic power and trade. For any investor the idea of the BRICs has to be a factor not least because the influence of these countries is immense. It doesn’t mean you should necessarily be investing directly. It does mean you should consider their influence as a competitive threat to Western firms, as a market for products (see luxury goods for example) as their consumer base grows and as a driver and/or supplier of commodities. The BRICS are part of this economic thinking.
Where it might become misleading is where these four are seen as the only driver so are viewed as some sort of group that will behave in a very similar way. Indeed, if anything all these countries have diverged wildly in their economic and political fortunes. There is also a risk that other countries could be excluded.
You could argue that the BRIC concept has led people to focus exclusively on these markets with various BRIC funds on offer. Though a BRIC fund will not necessarily exclude the others markets it will have a considerable amount invested there.
In addition, BRIC funds may not, for example, have done as well as global emerging market funds. There has also been a suspicion that some fund managers have been launching ‘me-too’ funds as well. Then again that doesn’t mean BRICs won’t do better at some stage. China’s stock market has had a pretty difficult time since the financial crisis despite its reasonable economic performance illustrating M. Edward’s second point. They key, we think, is to know what you are investing in, what a fund invests in regardless of what it says on the label and how that fits with your own attitude to risk.
So the BRIC acronym is a useful term. It may help you test your investment decisions. But be careful you don’t simply buy the markets concerned because of their share of global GDP. Given their profile It doesn’t necessary equate to liquid, investable shares.
Therefore M. Edward has a strong point to make. Mr O’Neill was perfectly within his rights to coin the term. Use it as food for thought when making your investment decisions. But it certainly isn’t a command to get exposure.
By the way, O’Neill has a new book out called the Growth map marking ten years on since he coined the term. We bet it’s worth the read wherever you stand in the debate.