Goldman Sachs BRIC Strategy Is Getting Hot Again: John F. Wasik
Commentary by John F. Wasik
March 30 (Bloomberg) -- Want to rebuild your stock portfolio? Start with a BRIC strategy.
As promoted by Goldman Sachs Group Inc. in 2001, this approach focuses on Brazil, Russia, India and China. While their stock markets were as battered as those in North America and Europe in 2008, most of them may recover faster and offer sustained growth.
Only the Russian economy raises some questions.
Dogged by loan problems, joblessness and low oil prices, Russia’s economy will contract this year and is the weakest in the BRIC family. The country’s population shrank in 2008 for the 14th straight year.
China, India and Brazil are a different story. It is impossible to ignore the population growth and human capital in these developing nations, which don’t have a fraction of the weaknesses that the Western banking system has.
Another reason for renewed faith in the BRIC strategy -- or rather “BIC” (excluding Russia) -- is the eventual economic decoupling of China from the U.S. At some point, China will wean itself off its reliance on export income and concentrate on domestic demand. That’s good news for international investors given its more than 1.3 billion people.
Fewer Debt Woes
China, India and Brazil aren’t suffering as much from the crippling leverage problems of the U.S. and Europe. The three countries are unlikely candidates for large American-style borrowing to fix banking and housing markets.
They are less likely to be saddled with inflation and debt when the global recession ends.
With the Group of 20 Economic Summit starting on April 2, People’s Bank of China Governor Zhou Xiaochuan last week suggested that the dollar shouldn’t be the world’s reserve currency anymore.
China has a sound reason to assert its economic independence. While the country’s economic growth has slowed from 13 percent in 2007, it is being buoyed by the government’s $585 billion stimulus plan.
As with the U.S. stimulus package, Chinese leaders have focused on infrastructure projects through 2010 and may launch another round.
Public housing, railways, highways, airports and reconstruction projects in Sichuan province (devastated by an earthquake last year) are under way.
Chinese Growth
The Chinese economy, the third-largest in the world, is likely to grow almost 8 percent in 2009. In contrast, Japan’s, South Korea’s and Taiwan’s may shrink this year.
China’s stock market, though, doesn’t reflect the country’s relative financial strength.
Unlike the U.S., which is largely borrowing from China and other nations to finance its stimulus program and other government spending, China is bolstering its economy from a huge cash pool.
Its foreign-exchange reserves alone amount to almost $2 trillion. Chinese households are also prodigious savers.
China’s future isn’t all roses. Dealing with a collapse in global trade, the nation still faces massive factory shutdowns, social unrest and an estimated 20 million unemployed.
Also projected to grow are Brazil and India.
Brazil grew 5 percent last year and the resource-rich country will benefit from trade with a growing China. India, which is getting a boost from a $31 billion government stimulus, will also see improved domestic demand.
BRIC Rebounds
Some of the strongest rebounds in world equity markets have taken place on the BRIC stock exchanges this year. By the end of last week, Brazil’s Bovespa had risen more than 11 percent, Russia’s Micex Index had added 31 percent, India’s BSE Sensex 30 had climbed about 4 percent, and China’s Shanghai SE Composite Index had gained more than 30 percent in 2009.
Don’t look for China or any other developing country to be an instant savior for your portfolio, though. Individual emerging markets are still very volatile.
Invest long-term in a broadly diversified international index or an exchange-traded fund such as the Vanguard Total World Stock Fund, or the iShares S&P Global 100 Index Fund.
In the meantime, think beyond the current financial morass plaguing the leading industrial economies. If you can afford to be in the stock market, your best investments may be the farthest away and least visible.
(John F. Wasik, co-author of “iMoney,” is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: John F. Wasik in Chicago at jwasik@bloomberg.net.