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Have the BRICs Seen Their Best Days?

It was ten years ago that Jim O’Neill published Goldman Sachs Global Economics paper #66. And in that paper he coined the acronym BRICs… and the term caught on like wildfire. The BRICs are Brazil, Russia, India and China. Four emerging economies that have been engines of growth in the decade since the birth of the term that tied them together as a symbol of the power of developing markets. And in that decade, the term that started as a symbol morphed into an investment theme all its own.

And over that decade, the BRIC countries grew four times faster than the US (with an average 6.6% GDP). And the BRICs share of the global economy grew from 11% to 25% (Goldman Sachs). And in that time, investors have poured $70 billion into them.

But 2011 was a dicey year for the global economy. The turmoil was felt in emerging markets, and the BRICs were no exception. While the S&P 500 was basically flat for the year (ending down -.4%), the MCSI BRIC Index fell -25%.

And individually, the BRICs didn’t fair better. India and China both fell -23%, Russia lost -18% and Brazil, -16%.

With that, the BRICs suffered outflows of $15 billion in 2011…the biggest since 1996. And those outflows led to a nagging question: have the BRICs peaked? Will their contribution to global growth taper off?

They have already slowed. Last quarter they grew at the slowest pace in two years. And next year the BRICs are projected to decelerate to an average 6.1% growth by the IMF…well below their 2007 peak of 9.7%. And the BRICs are currently lagging in per-capita GDP, with India ranking 183rd in the world, China at 84th, and Brazil and Russia around 50th (according to the World Bank).

That said, I think it’s a stretch to say the BRICs are ‘over’. Their share of the global economy will continue to expand, and the firm that coined their name expects them the join the world’s largest economies by 2050.

Emerging markets have rebounded before. In just five months in 2008 investors pulled $48 billion from emerging market funds…and then the MSCI Emerging Market Index rose 108% over twelve months. The BRICs will come back, and will continue to post growth that the US can only envy.

Ten years ago the term BRICs became a window to the global economy that opened Western eyes, and dispelled preconceived ideas about emerging populations and their potential. And ten years after coining the acronym, Jim O’Neill now prefers not “BRICs”, not even “emerging markets”… but “growth markets”. That makes sense. Investing in the global economy shouldn’t be limited to developing economies. And investing in emerging markets shouldn’t be limited to the BRICs.

Still, these four countries have been, and will continue to be, a meaningful way to gain exposure to the emerging world, and important part of a global view of the markets. I think O’Neill put it best: we still “need the economic mortar of the BRICs”.


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