A reader wrote in recently wanting to know more about BRIC and the related exchange traded funds (ETFs). We’re here to help!
BRIC stands for four of the fastest-growing emerging markets out here: Brazil, Russia, India and China. In 2007, these countries delivered some of the biggest returns of any ETFs or exchange traded notes (ETNs) around. So far for 2008, BRIC ETFs and some of the single country funds have been fairly quiet.
But make no mistake: these countries are still growing, and could have plenty to offer down the line.
Brazil
Since 2004, Brazil’s economy has grown an average of 4.5%, according to a story in the Economist. Brazil has several factors working in its favor that some of its other BRIC brethren don’t necessarily share:
- There’s a multi-party democracy and freedom of expression
- The country doesn’t have the aggressive nationalism seen in some other countries
- Brazil has faced and dealt with inflation and debt.
Brazil produces and exports some of the world’s most popular agricultural products, including beef, orange juice, soybeans, sugar cane and coffee.
The Brazil ETF, iShares MSCI Brazil (EWZ), has been a strong performer. In 2007, it was up 72.5%. So far this year, it’s up 10%.
China
China’s ETFs were the talk of the town in 2007, with returns well into the double digits. But China is also still sporting a growing economy. Its gross domestic product (GDP) rose in 2007 by 11.9%, beating projections of 11.4%, for the fastest growth in 13 years.
Retail sales are on the rise, going up by 20.2% in the first two months of this year, reports Tony Sagami for Money and Markets. Auto sales are taking off, particularly in the area of luxury vehicles, for which sales are expected to grow between 40%-45% this year.
- iShares FTSE/Xinhua China 25 Index (FXI): down 12.9% year-to-date, up 53.3% in 2007
- PowerShares Golden Dragon Halter USX China (PGJ): down 20.2% year-to-date, up 62.8% in 2007
- SPDR S&P China (GXC): down 15.5% year-to-date, up 69% in 2007 since March inception
Russia
Russia’s economy is heating up, but some wonder if it might be approaching "too hot to handle" territory. Still, there are others who think the economy is just fine. On Monday, the Russian Central Bank lifted interest rates in an effort to cool things off, reports Russia Today.
One analyst blames the fact that inflation has been higher than the nominal interest rate for many years, which has led to an overstimulated economy. The country’s capital expenditures also grew last year by 40%, leading to inflationary pressure. The country’s current rate of inflation is around 14%, which is 2% over last year’s total.
Many are curious to see what, if anything, changes in the economy when Dmitri Medvedev takes the helm from President Vladimir Putin. Medvedev is a longtime associate of Putin’s and has been appointed by him to all of his previously held government jobs.
Russia’s single-country ETF owes much to the rising price of oil and gas, since 50% of the fund is allocated in those companies.
- Market Vectors Russia (RSX): up 0.1% year-to-date; up 29% since 2007 inception in May
India
In 2007, the iPath MSCI India Index ETN (INP) was the strongest-performing fund, wrapping up the year 86.4% higher. So far this year, it has retreated and is down 26%. Indian securities regulators shut the door on all exchange traded products, effectively knocking out the fund.
This year, two new ETFs giving investors access to India launched with much anticipation: WisdomTree India Earnings (EPI) and the PowerShares India (PIN). Since inception, EPI is is down 4.5%; PIN is up 4.9%. The funds have their own ways of getting around India’s strict foreign investment regulations.
India is an attractive country to many investors, thanks to its combination of vast intellectual capital and remaining room for growth. According to Robyn Meredith, the senior editor for Asia for Forbes Magazine, India’s weaknesses are its infrastructure, corruption and red tape. On the other hand, going for it is fast growth, well-run businesses and optimism.
Investors who can’t decide which single-country BRIC fund might be best
for them can take a look at the funds that hold parts of all four, although they are not 100% focused on BRIC countries. They include:
- SPDR S&P BRIC 40 (BIK): down 2.7% year-to-date; China is 37.2%, Brazil is 25.8%, Russia is 19.1%, India is 6%. The United Kingdom also makes an appearance, with 10.1% of holdings.
- Claymore/BNY BRIC (EEB): down 2.3% year-to-date; Brazil is 53.6%, China is 19.7%, Hong Kong is 12.3%, India is 8.8%, Russia is 5.3%.
For full disclosure, some of Tom Lydon’s clients own shares of FXI and RSX.