Leaders of BRIC countries (Brazil, Russia, India and China) are gathering for their first official summit in Yekaterinburg, Russia today to discuss long-term plans, according to the Economist. Member nations may coordinate in an effort to find an alternative to the dollar as a global currency and expand bilateral trade.

Analysts say BRIC countries are stepping up cooperation in an attempt to reposition themselves in the international arena, as stated in ChinaView. The recent financial crisis has also been a trigger in convincing these countries of the need to establish a new international political and economic order.

One of their main concerns is that Western governments should better supervise their countries’ financial capital and enhance risk warnings and disclosure in financial services. BRIC members will also discuss future ways of handling financial crises and less reliance on the U.S. dollar.

BRIC leaders will establish a relationship of mutual cooperation and common development in emerging market economies. BRIC countries may pool resources into common development interests. They could supplement each other in the fields of finance, energy, services, technology, agriculture, environmental protection and food safety, along with multilateral trade talks at the WTO.

iShares MSCI BRIC (BKF): up 51.0% year-to-date

Claymore/BNY BRIC (EEB): up 49.5% year-to-date

SPDR S&P BRIC 40 (BIK): up 50.5% year-to-date

For more stories on BRIC countries, visist our BRICs category.

Max Chen contributed to this article.

For full disclosure, Tom Lydon’s clients own shares of EEB.

However, recent weeks have seen emerging economies – especially the BRICs – awakening from their slumber and it’s time to consider new opportunities in these areas and how they may benefit us.

The theory of decoupling, which is the ability for an economy to grow on its own without assistance from other countries, has been laid to rest for the time being. The United States depends on these countries for imports and they’re dependent on us to continue to buy the materials they produce.

Now that BRICs have surged above their 200-day moving averages, it’s time to revisit them, see what’s been happening, where they’ve been and where they’re going from here.

ETFs have made it easier and more cost effective than ever for investors to gain exposure to the emerging markets, mostly by eliminating the guesswork of stock picking. Although researching large companies is not a daunting task, getting information about a smaller company in India might yield few results. Enter an emerging-market fund, where the legwork not only has been done for you, but you can invest in dozens of companies in one swoop, spreading your risk around.

Also numerous choices exist among ETFs. You can focus on a single country, such as Brazil, or you can just buy one fund that gives you exposure to all four BRICs.

BRAZIL

Brazil managed to ride out the economic downturn better than most of its other BRIC brethren, thanks to a host of government policies and actions taken as the crisis worsened. Even things generally seen as “bad” by some wound up helping the country in the long run, including:

• The heavy influence of the government in the financial sector.  In fact, retail bank giant Banco de Brasil, the nation’s largest mortgage lender, Caixa Economica , and BNDES, a big development bank that feeds credit to favored companies are all controlled by the government. While the rest of the world is figuring out how to get a handle on banks, Brazil has been doing it all along.
  
• Hugely expensive bank loans, meaning fewer people in debt.
  
• Huge reserve requirements and taxes on funding that push up the price of loans discouraged private banks from taking wild risks and jumping on the bandwagon that some of its peers in Europe and the United States did.
• Public-sector debt is below 40% of GDP, previously a problem in the nation.
• Foreign currency borrowings have been exchanged for the Brazilian real (their currency) dominated ones, so fluctuations in the real will not hinder the government’s balance sheet; Brazil has actually built up a reserve of about $200 billion to defend its currency.
• The economic crisis isn’t pushing up inflation, which has been an ongoing problem in the nation.  This has enabled the central bank to cut interest rates.

Latin American countries have been undergoing large infrastructure programs and they are likely to continue after the global recession has abated. The government’s growth acceleration program will continue into 2010, and it includes $231 billion for social, transport infrastructure and energy projects. In the second quarter of 2008, civil engineering progressed 10% higher than for the same quarter in 2007. A National Plan for Logistics and Transportation will also continue into 2023, including a budget of $79 billion.

A series of other factors that favor the economy include:

• Seasons. The Brazilian Bovespa stock index has a seasonal rhythm and the peaks tend to lie between the end of October and end of May. It is calculated that the average gain per period was around 16.4%.
• Trends. The intermediate trend is up with the MSCI index above its long-term trend line, the 200-day moving average.
• Fundamentals. Brazil is still a major producer of copper, crude oil, gold, silver, iron ore and coal. All of these commodities are still in demand and that demand is on the rise.
• Performance. As of May 27, Brazil’s index, the Bovespa, is up 28.8% year-to-date; the S&P 500 by comparison is up 0.8%.
• Optimism. Brazil’s government has gleefully estimated a 2% growth for GDP this year.

Ways to Play Brazil

• iShares MSCI Brazil (EWZ)
• Market Vectors Brazil Small-Cap (BRF)

RUSSIA

Of all the BRICs, Russia might have the most formidable challenges to overcome. First, Russia has a long and varied history of not “playing nice” with other economies, which has kept this rapidly growing economy from truly being all it can be.

Second, Russia’s economy has been seen as far too dependent on oil. Oil’s record-setting run benefited the economy enormously and left it with vast reserves of cash, but as soon as the bubble burst, Russia found itself without other sectors to lean on in bad times and its reserves are dwindling.

Finance minister Aleksei L. Kudrin has assured that the government is not in desperate need of financing, but is open to holding a road show in allowing foreign investors to get acquainted with Russian finances.

Foreign borrowing is seen as a way to help the economy by determining a benchmark rate for loans to corporations that are borrowing from Western banks.

One question, though: with credit markets so tight, is anyone actually going to loan money to Russia?

Due to its $385 billion in reserves, the world’s third largest reserve fund, Russia’s credit rating is still strong and it could even draw down its reserves without having to borrow from abroad. In 2010, the government may borrow $5 billion to test things out.

Under Secretary for Political Affairs William J. Burns noted in a recent speech that the relationship between Russia and the United States has five major points that need to be addressed:

• Finish a legally binding treaty on the reduction and limitation of strategic offensive arms
• Reduce the threat of nuclear weapon proliferation to unscrupulous regimes or terrorist groups, and safeguard the peaceful use of nuclear technology
• Help resolve conflicts in areas such as Pakistan, Afghanistan and the Middle East, and protect the sovereignty of independent states
• Ease the international financial crisis, expand Russian-American economic ties and include Russia into global economic institutions
• Commit to a way to help lessen or stop the further degradation of the environment

Ways to Play Russia

• Market Vectors Russia (RSX)

INDIA

During the slowdown, India’s construction came to a grinding halt, the luxury art market slowed and even the most educated of its population were having trouble finding employment.

During the boom years, India’s growth was attributed to large inflows of cash and investments, around 39% of GDP in 2008, with more than a third coming in from abroad. In the last 3 months of last year, foreign loan and direct investment plummeted almost a third.

The International Monetary Fund (IMF) has reported that Indian companies are among the world’s most exposed as a result of heavy borrowing. On the other hand, financial corporations in India weren’t weighed down by toxic assets, which wound up insulating them somewhat from the full impact of the global recession.

In the fourth quarter of 2008, the economy grew 5.3%, the slowest rate in five years. The government predicts a 6% growth this year while the IMF projects a 4.5% growth. There will be increased fiscal spending on infrastructure and social programs, and the Central Bank has reduced its benchmark interest rates.

A recent election, however, could reverse the country’s course. The day the Congress Party won the elections, the stock market shot up a whopping 17%. No wonder they were dancing in the streets. The victory raised hopes of a revival in foreign direct investment and economic growth, as well as tax reform and significant infrastructure spending.

Manmohan Singh’s win has given hope to a half a billion Indians that poverty isn’t a way of life.

Ways to Play India

• PowerShares India (PIN)
• WisdomTree India Earnings (EPI)
• iPath MSCI India ETN (INP)
  

CHINA

China’s economy, while still considered “emerging,” is considered one of the world’s economic superpowers. It’s the second largest in the world, and as one of largest buyers of U.S. debt, the relationship we share is a significant one.

Many economists believe that China’s economy will be the fastest-growing one in 2009. While the country suffered in the economic downturn and saw massive job losses, it also forcefully reacted to the downward pressure with $580 billion stimulus spending package that by many accounts is working.

China’s Central Bank also stepped in and prioritized the maintenance of stable economic growth by relaxing monetary policies and ensuring sufficient liquidity. The bank also kept  the yuan stable at a balanced level with a more flexible exchange rate.

In the meantime, China is trying to increase its influence with more overseas aid and loans, and top officials are setting up the country as the world’s next top economic power. There have been talks of a “Beijing Consensus” that might displace the Washington Consensus, which is a set of ten specific economic policy prescriptions that lays out how developing countries should manage their own economies.

While China is growing and powerful, there are still some hindrances to its growth: energy is insufficient to run at fully-installed industrial capacity; the transport system isn’t efficient enough to move mass quantities of critical items such as coal; the communications system isn’t able to meet the needs of a population as large as China’s.

One facet of China’s economy that might pay off in the long run is that consumer spending only makes up 35% of China’s GDP. The culture of thrift in China has caused massive amounts of household savings. But tax cuts and the government’s focus on infrastructure projects aims to help households. There is also a health insurance plan that would be provided to hundreds of millions more people over the next couple of years.

Ways to Play China

• iShares FTSE/Xinhua China 25 (FXI)
• PowerShares Golden Dragon Halter USX China (PGJ)
• SPDR S&P China (GXC)
• Claymore/AlphaShares China Small Cap (HAO)
  

How to Choose the Best ETF for You

If you are hungry for exposure to the BRICs and other emerging markets, ETFs can give it to you in a variety of ways, including two of the most common:

• Target a specific emerging market with a single-country fund, such as any of the ones listed above, which can potentially deliver higher volatility but greater rewards when they do well; or…

• You can choose a region or class of emerging markets with a broad-based fund, which spreads the risk and volatility over several emerging-market countries

As you decide which option works best for you, decide what your comfort level is, what areas are most interesting to you and how much risk you would like to take. It’s also important to watch the trend lines and look for those areas that are moving.

When you’re looking at a broad BRIC fund, it’s important to look at the allocations. None of them have an equal weighting across all four countries. In fact, most of them allocate at least one-third to one country, while the rest of the countries are spread out among the remaining two-thirds.

Ways to Play the BRICs

• iShares MSCI BRIC (BKF): Brazil, 27.4%; China, 23.5%; India, 13.9%; Hong Kong, 12.9% and Russia, 11.9%
• Claymore/BNY BRIC (EEB): Brazil, 52.8%; China, 18.3%; Hong Kong, 15%; India, 9.2% and Russia, 3.6%
• SPDR S&P BRIC 40 (BIK): China, 31.6%; Brazil, 23.9%; Russia, 23.2%; Hong Kong, 13.7% and India 6.2%
• First Trust ISE Chindia (FNI): China, 40.7%; India, 35.6%; Hong Kong, 13.6%

For full disclosure, some of Tom Lydon’s clients own shares of GXC and EEB.

ETFs are becoming a popular investment tool for investors to gain exposure to emerging markets by removing the onerous task of picking individual stocks, writes Tom Lydon for Stocks, Futures, and Options (SFO) Magazine.

This nifty tool allows for exposure to markets like the BRIC countries with ETFs such as Claymore/BNY BRIC (EEB), SPDR S&P BRIC 40 (BIK), or iShares MSCI BRIC (BKF). An investor may also focus on the individual countries which include:

• Brazil, iShares MSCI Brazil (EWZ), has a strong economy that can endure the global downturn. It also has a rising middle and has a stable political system. But, Brazil heavily relies on commodities which handicapped them last year when commodities plunged.
• Market Vectors Russia (RSX), is known for its reliance on oil and government corruption. This market is rather volatile but the undaunted investor would see that the country has an abundant natural resource, large foreign exchange reserves and growing consumer economy.
• India, PowerShares India (PIN), is a fast-growing economy rich in educated and intelligent people. It is expected that the resurgence in India will have companies scouring for employees. But the country is crowded and has a poor infrastructure system. It has limits on foreign investment which may constrain growth.
• China, iShares FTSE/Xinhua China 25 (FXI), is seen as too dependent on its exporting industry. It is the world’s third-largest exporter and is left unshielded against a stagnant global economy.For those intrigued by the BRIC countries or other emerging markets, ETFs can target a specific emerging market with a fund for that country and they can target a region or class of emerging markets with a broad-based fund.

  The savvy investor should get ready for the time when the goddess of the markets once again graces us with her return. Our strategy notes that when a fund crosses above its trendline (the 200-day moving average), we’ll consider

Once thought to be de-coupled form the rest of the world, BRIC ETFs hit the market with major investor interest, and although there’s a downtrend showing through right now, these funds are still useful in the long run for diversification and portfolio allocation, reports Jonathon Bernstein for ETFZone.

Three BRIC ETFs he examines are:

• SPDR S&P BRIC 40 Index (BIK): down 58.5% year-to-date; 0.5% expense ratio

• iShares MSCI BRIC Index (BKF): down 61.2% year-to-date; 0.75% expense ratio

• Claymore Bank of New York BRIC (EEB): down 57.1% year-to-date; 0.7% expense ratio

The ETFs are closely correlated to the U.S. benchmarks, however, their performance has nothing to do with this, so they are still a useful diversification tool. China is growing at around 10% per year, India is growing at 8-9%, Brazil and Russia 5-7%. These rates are not constant, and of course depend on healthy participation of Western economies, as well as the rest of the world.

Allocation by country is different in each fund, while China and Brazil dominate 65-85% in each, and India and Russia get honorable mentions, but scant exposure. Industry allocation is more similar as industrial, energy, telecommunications and financials at the forefront.

After the downturn, some of the BRIC countries will likely recover better than others. Some might be in for long-term damage recovery, while others should rebound nicely.

Either way, we use trends to identify what areas are moving, and for the time being, the trend in these funds is down along with the rest of the globe.

In Brazil, the middle class is described as someone with a job in the formal economy, access to credit and who has ownership of a car or motorbike, so says The Economist.

One research institute says that this includes households with a monthly income ranging from about $600-$2,600. Since 2002, the proportion of the population that fits this description has increased from 44% to 52%. Brazil, previously notorious for its extremes, is now a middle-class country.

The new middle-class are people who would normally serve other people, so Brazilians are very aware of class, and none of them want to feel “cheap,” nor do they settle for anything less than cosmetically “perfect.” This could explain the national obsession with plastic surgery, with around 600,000 operations annually – second only to the United States.

The high interest rates of today’s Brazil is helping to calm the rapid growth in credit (in the year to July, it had grown 20%), and lending may be scaled back.

Many analysts feel that this newer middle class will still favor Luiz Inácio Lula da Silva’s Worker’s Party rather than the center-left of former president Fernando Henrique Cardoso. The worker’s party will have to pay attention to this group of voters that have socially conservative attitudes toward issues such as abortion and gay marriage.

• iShares MSCI Brazil Index (EWZ): down 20.9% year-to-date
• Claymore/BNY BRIC (EEB): down 28.6% year-to-date; Brazil is 57.8%
• streetTRACKS SPDR S&P BRIC 40 (BIK): down 29.9% year-to-date; Brazil is 27.3%
• iShares MSCI BRIC Index (BKF): down 35.3% year-to-date; Brazil is 34.6%

Over the past month, the S&P 500 SPDR (SPY) has outperformed every BRIC (Brazil, Russia, India and China) -focused ETF, except India, and all of the fallen countries have shown just how risky they can be.

Carl Delfeld for ETF XRAY reports that the S&P 500 has fallen 12% year-to-date, while Brazil is down 10%, Russia is down 18&, India is down about 37% and China is off by about 28%.

In the last month, though, India has been a stellar performer and is the only BRIC country putting up positive numbers.

What is interesting is that these resource rich countries were riding high, and now the fall of commodity prices has shot them down. This type of volatility is what investing abroad can entail, but the reward can also be worth it.

The flexible and ever-present U.S. economy has taken hits from high energy prices, mortgage meltdowns, and credit tightening in stride. So the U.S. dollar may be ready to set new records and begin its climb back up after a long three years.

Broad BRIC ETFs include:

• iShares MSCI BRIC Index Fund (BKF): down 25% year-to-date; Brazil, 34.6%; China, 31.5%; India, 12.6%; Russia, 11.7%
• SPDR S&P BRIC 40 (BIK): down 20.8% year-to-date; China, 38.4%; Brazil, 27.3%; Russia, 17%; India, 5.6%
• Claymore/BNY BRIC (EEB): down 20.7% year-to-date; Brazil, 57.8%; China, 18.2%; India, 7.6%; Russia, 5%

Single-country BRICs include:

• Market Vectors Russia ETF (RSX): down 17.9% year-to-date
• iShares MSCI Brazil Index (EWZ): down 9.6% year-to-date
• PowerShares India (PIN): down 15.5% since March 5 inception
• WisdomTree India Earnings (EPI): down 21.4% since Feb. 26 inception
• iShares FTSE/Xinhua China 25 Index (FXI): down 26.9% year-to-date
• SPDR S&P China (GXC): down 31.3% year-to-date

Regardless of whether or not the United States is truly in a recession, it is undeniable that it has experienced a serious economic slowdown based on a number of different factors. As the BRIC economies all currently fight inflation, exports from these countries will be adversely affected by the slowdown here, reports Deidre Keown for Advisor Perspective.

The degree to which of these countries are most vulnerable to the U.S. slowdown varies. China and Brazil feel the effects most. Nearly one-fifth of Brazil’s total exports went to the Unites States, and it is predicting a slowdown of growth from 16% in 2007 to 12% in 2008. China estimates that nearly 19% of total exports were U.S.-bound in 2007, as exports account for 70% of the Chinese GDP. However, this is unlikely to make much of a dent in China’s economy given its double-digit growth.

India is vulnerable to an extent, as about 15% of exports went to the United States in 2007. Exports account for 33% of Indian GDP. Estimates show that India’s growth is likely to drop by 2% this year.

Russia is the most insulated from the slowdown here, with just 3% of its total 2007 exports heading for us. This will be a disadvantage in the long run, but in the short run, this insulation from our country will cushion them from our own downturn.

As the slowdown persists, BRIC economies will see less foreign direct investment from the United States. This will happen as U.S. investing sentiment has taken a hit because of the sub-prime credit crisis and defaults in sub-prime mortgages.

However, the BRIC economies do have a couple factors which will offset their vulnerability to a slowdown in the U.S. economy. All of these countries have shown strong growth in domestic consumption. This allows for all of these countries to remain somewhat self-sufficient and creates both domestic investment and demand.

Some ETFs covering each of the BRIC economies individually include:

• Market Vectors Russia ETF (RSX), down 17% year-to-date.
• iShares MSCI Brazil Index (EWZ), down 5.3% year-to-date.
• PowerShares India (PIN), down 15.3% since March 5 inception
• WisdomTree India Earnings (EPI), down 21.3% since Feb. 26 inception
• iShares FTSE/Xinhua China 25 Index (FXI), down 23.9% year-to-date
• SPDR S&P China (GXC), down 27.8% year-to-date

Some broad-based BRIC ETFs include:

• SPDR S&P BRIC 40 (BIK), down 17.8% year-to-date.
• iShares MSCI BRIC Index (BKF), down 22.5% year-to-date
• Claymore/BNY BRIC (EEB), down 18.1% year-to-date

As this economy grows, Brazil has developed a new swagger that has provided it with greater leverage to push for a tougher bargain in trade talks with both the United States and Europe. Despite questions over just how much room for expansion there is actually left, some feel it could be a moot point.

According to Alexei Barrionuevo for The New York Times, Brazil’s growth has been fueled through a combination of respect for financial markets and targeted social programs, which are lifting millions out of poverty. With a history of unequal wealth, Brazil has shrunk its income gap by 6% since 2001, diminishing the unequal distribution of wealth. This is evident in income among the lower classes in Brazil. The bottom 10% of Brazil’s earners saw their income jump nearly 58% from 2001 to 2006 while the top 10% of earners only saw an increase of 7%.

Despite the numbers speaking for themselves, this economic expansion is expected by many experts to last. Nonetheless, a strong currency and inflation that has been kept in check for the most part has Brazilians spending rapidly, which acts as the motor for the economy. With the United States and Europe struggling with recession and housing crises, Brazil’s economy does not show the vulnerabilities of other emerging markets. It grew 5.4% last year.

Brazil’s economy is greatly diversified, as it has opportunities to expand its booming agricultural sector into new fields. It also has many untapped natural resources. Furthermore, new oil discoveries will push Brazil up into the top echelon of oil producers within the next decade. Brazil’s national oil company, Petrobras, expects to be producing 100,000 barrels of oil per day from one of its oil fields by 2010, and hopes to produce a million per day within 10 years. Similarly, Petrobras believes that anywhere between five and eight billion barrels of oil exist off the Brazilian coast.

As the slowdown of the global economy was originally thought to affect Brazil, this country has been surprisingly resilient and has showed no signs of a hangover from the economic problems the US and Europe face. Don Hanna of Citibank may put it best when it comes to the Brazilian economy, “What makes Brazil more resilient is that the rest of the world matters less.”

A few ETFs that could capitalize on the stability of the Brazilian economy include:

• iShares MSCI Brazil Index (EWZ), up 1.4% year-to-date
• Claymore/BNY BRIC (EEB), down 14.8% year-to-date
• SPDR S&P BRIC 40 (BIK), down 13.4% year-to-date
• iShares S&P Latin America 40 Index (ILF), up 2.3% year-to-date

As investors consider actions involving these ETFs, it is important to watch each 200-DMA before deciding whether they are in or out. While Brazil might have potential, it’s best to wait until it demonstrates a firm trend upward.