What’s the deal with BRIC stocks?
The initials denoting Brazil, Russia, India, and China have been around a few years. And I’ve rarely seen a dumber amalgamation of markets. An analyst at Goldman Sachs coined the term in 2001 to describe the four nations he thought would join Japan and the US to be the world’s biggest economies by 2050. But just think about their characteristics:
Sure, all four are part of the developing world and have big populations. But the similarities end there. Two are democracies, two are non-democratic. Two are resource exporters, two importers. Two run a trade surplus, two a deficit. And it’s never the same two countries..
As capital has floated around the world it’s landed in the BRICs via direct investment, market liberalization, and trade, raising asset prices and economic activity. But it’s landed everywhere else, too. The BRIC moniker is meaningless when it comes to describing the specific risks associated with investing in a country, or in companies that do business in a country.
And there are certainly risks: nationalization, war, resource depletion, civil unrest, currency fluctuation, discriminatory tax treatment, even changing weather patterns: they all need to be considered when evaluating whether an investment is appropriate. And the calculus is different for each country.
By masking the issues, the BRIC moniker ill-serves investors. I’m all for international investing. But now more than ever, we need to understand our risks.
Douglas R. Tengdin, CFA
Chief Investment Officer
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