Forget The BRICs — Here’s The Next Big Thing In Emerging Markets
Thirteen years ago, four emerging markets were singled out by a Goldman Sachs economist as possessing a strong chance at stealing some of the G7 countries’ thunder.#-ad_banner-#
Neatly packed into a four-letter acronym, the BRICs — Brazil, Russia, India and China — rose to prominence after the term was coined by Jim O’Neill. The tides have shifted, however, and O’Neill is endorsing a new slate of players in the developing world.
Since the end of last year, the torch has been passed from the BRICs to the MINT countries: Mexico, Indonesia, Nigeria and Turkey. These four have emerged as the next wave of rapidly growing markets soon to gain global clout, and investors are taking note.
Each economy possesses a relatively younger population and a budding middle class, both supporting attention-worthy GDP growth — but do they offer real promise as investments? Let’s take a closer look.
|Advancing infrastructure, a large domestic consumer market, and increasing exports to the U.S. and its Latin American neighbors helped land Mexico on the MINT list. Mexico’s close ties with the U.S. could help or hinder the nation, as the economic links between the two are tight, and slow growth stateside could echo for America’s southern neighbor. Organized crime, drug trafficking and political turmoil are roadblocks to growth as well. |
An appropriate way to invest would be in the iShares MSCI Mexico ETF (NYSE: EWW). The exchange-traded fund keeps over 16% of its holdings in America Movil (NYSE: AMX), a venture of Carlos Slim, who perennially ranks among the world’s very wealthiest people. Bank of America (NYSE: BAC) held $129 million in EWW as of the end of last year.
| Indonesia holds a special place on this list, as many (including O’Neill) contended that the original BRIC designation should have been BRIIC or even BIIC, excluding Russia. The Southeast Asian nation is the fourth most populous country in the world (behind China, India and the U.S.). Coal supplies, a strong import and export economy, and a stable democratic government are all high on the list of reasons to invest. However, falling commodity and currency prices could put the brakes on development. |
Sticking with the largest issuer of ETFs, seek out the iShares MSCI Indonesia ETF (NYSE: EIDO) to gain exposure to this island nation. Financials are well represented in the ETF, including Bank Central Asia, Bank Rakyat and Bank Mandiri. Deutsche Bank’s (NYSE: DB) 13F from last year’s fourth quarter shows a $52 million holding in EIDO.
| Nigeria is attractive to outside investors for a number of reasons: the abundance of natural resources, the lack of debt, and its position as a standout player among its African neighbors. However, election fraud and political corruption have been and likely will continue to be a big hurdle impeding meaningful advancement. That said, growth has clocked in at 7% a year since 2000, with upcoming government reform and a GDP-rebasing poised to push those numbers even higher. |
Multiple ETFs are not readily available for those wanting to invest in Nigeria, with one of the only diversified options being the Global X Nigeria Index ETF (NYSE: NGE). The First Bank of Nigeria and Nigerian Breweries are just a couple of the companies held in the fund, but NGE has few notable investors.
| Turkey’s favorable geographic location between Europe, Asia and the Middle East has been an asset for the nation since the days of the Byzantine Empire. However, high inflation, lackluster economic growth and increased political instability have given some investors pause recently. Fortunately, nearly half of the country’s population is younger than 25, giving rise to a large consumer base, even in the face of a falling lira. |
For those seeking a Turkey ETF, check out the iShares MSCI Turkey ETF (NYSE: TUR). Turkey’s second-largest private bank, Garanti Bank, accounts for nearly 12% of the ETF. Financial services group USAA had a position amounting to $28 million as of early February, prompting the SEC to require a 13G filing.
Risks to Consider: Most investors are aware of the risks associated with investing in developing countries. Government regulation (or lack thereof), currency woes, instability and so on can all create headaches for those looking for the Next Big Thing. As it stands, only one of the BRIC nations really took off — namely, China. Recognize the speculative nature of these investments before acting.
Action to Take –> Just as the BRICs were a long-term play (and continue to be), any investments in the MINT countries should be taken with an even longer-term horizon in mind. While Indonesia possesses strong potential, the other three countries leave more to be desired in their current states.
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