BRIC to BIC to BICI?

Goldman Sachs coined “BRIC” for Brazil, Russia, India and China. Some commentators have recently suggested that Russia’s stocks are too volatile, economy too fragile and politics too hostile to capital, and that maybe “BIC” is more attractive. Based on the recently released forecast for GDP growth by the World Bank and the OECD, maybe “BICI” will become popular (Brazil, India, China and Indonesia) someday.

Actually, we don’t expect that to happen as a product phenomenon (although it may become a theme), but we do take note of the GDP growth ranking of Indonesia higher than Brazil and just behind China and India. Indonesia is a very small market and its country funds have quite limited trading liquidity. They have a long way to go to be in the same class as the BRICs for “investability”.

Country GDP Growth Outlooks:

The following table presents historical, estimated and forecasted GDP growth rates for selected countries reported by the World Bank and by the OECD in their June outlook reports. (Click to enlarge.)

Note that the developed economies are shrinking and not projected to approximate 2007 levels of growth until 2011.

The combined developing economies, excluding China and India, are shrinking and not expected to achieve 2007 levels of growth by 2011.

Among the BRICs, China and India are still growing, although at half the rate of 2007, and not expected to achieve 2007 GDP growth rates by 2011. Yet at half speed they will be growing more than 3 times as fast as the US in 2011.

Russia is shrinking more than Japan, the second worst in the batch reported by the World Bank in its “Global Development Finance” report in June 2009. Growing its GDP at -7.5% now and expected only to achieve 3.0% growth by 2011, it is pulling up the rear — not much better than the developed economies in 2011. Oil prices are a wild-card there, we would think.

The OECD in its June “OECD Economic Outlook” report has a less optimistic view of the 2010 US, European, Japanese and Indian economies, and a more optimistic view of GDP growth for China, Brazil, Turkey, Mexico and Russia.

Some relevant country and region funds are: SPY, VTI, IWV, BIK, EEM, VWO, IEV, VGK, EWJ, FXI, IFN, IF, EWZ, EZA, THD, TUR, EWW, and RSX.

Disclosure: we own some of the named funds from time-to-time.

[post-script: just noticed Trader Mark at Seeking Alpha reported last week that Morgan Stanley suggests adding Indonesia to BRIC to get BRICI. Oh well, we tried to be original with our BICI comment, but are apparently late to the party]

Comments

[Graham and ...:]

We think the core of "BRIC" is BIC. But in a forced choice between "BRIC" and "BICI," we'd take the former, because Russia is a geopolitical power, and Indonesia is not. (Indonesia has about twice as many people as Russia, but Russia is the world's largest country by land.

Jun 26 09:09 AM

[HaavBline:]

This is a silly game.

If Indonesia, why not Turky, South Africa, Mexico? Are we to change the line-up everytime some country's growth rises while another get into temporary trouble?

Jun 26 10:43 AM

[Philly Jim:]

You just reminded me how much I hate those disposable BIC razors and their cheap pens! Hey, maybe BIC is a more appropriate acronym for these wannabe superpowers! Russia has more clout now to negotiate strategic trade terms with the West than the BIICs; long-term it will be more politically viable to align with what you know, rather than risk a polarization of everything and face what you don't! Finally the steady-campaigning politicians are getting it.

Jun 26 11:11 AM

[feelofficer:]

A silly game...

Despite Russia's perilous investment circumstance... it ranks as a world power rich with technology, resources and population to maintain it as a (somewhat) worthy investment.

What does Indonesia have but population?

Jun 26 11:13 AM

[cyclingscholar:]

Russia is an will remain for the foreseeable future, what it has ALWAYS BEEN....a corrupt, authoritarian "third world country with nuclear weapons. "

India is an emerging world superpower with a geography which dominates its ocean (The Indian Ocean, for you publick skool illiterates) more than any nation on earth...and one brimming with sea lanes for commerce between asia (including china) and Europe.

cyclingscholar

Jun 26 12:32 PM

[Ian Myslivec:]

Russia's great-power status says nothing about its potential to drive global growth. Russia has a wonderful scientific base, but can't seem to put it to work economically, or have the will to put policies in place that would.
I'm not saying that Indonesia does not have its own problems, but it has far more potential for Chinese/Indian style growth than Russia

Jun 26 01:54 PM

[Valley Boy:]

Indonesia has abundant rice, fish, coal, oil, gas, copper, nickel, geothermal and specialty woods in various stages of development.
It has the added value of being geographically situated on the shipping lanes between China, India, and Australia.
For researching the trade information on the various countries, you might consider consulting buyusa.gov, trade.gov, and export.gov linking up with the U.S. Department of Commerce's two bureaus , U.S. Commercial Service and International Trade Administration.


On Jun 26 11:13 AM feelofficer wrote:

> A silly game...
>
> Despite Russia's perilous investment circumstance... it ranks as
> a world power rich with technology, resources and population to maintain
> it as a (somewhat) worthy investment.
>
> What does Indonesia have but population?

Jun 26 02:05 PM

[pdub271:]

Ok, maybe Indonesia is an up-and-coming. But the indices for small emerging markets are notoriously volatile. I'd invest in China and India before Indonesia, at least for the time being. I do agree that Russia is crap -- too stuck in the past and undiversified to deserve BRIC status.

Jun 26 02:28 PM

[AKS129:]

Russia is one of the most corrupt countries on earth and does have huge stockpile of nuclear weapons that's the one reason it is feared. Russia has probably the worst investment climate this side of Zimbabwe.....but it also has huge reserves of nat gas, oil, commodities, etc..it also has 3rd largest holdings of $.

Russia isn't going anywhere, but it's not going to be the best country to invest in unless you don't care about being scammed.

Jun 26 04:23 PM

[Frugal Joe:]

I can't see Indonesia progressing very far. The government is too disorganized and after slaughtering thousands of their Chinese business class and passing laws forbidding non-Indonesians from holding any substantial gov post, not much in the way of DFI there except continued mediocre performance imho. Their only hope is for companies like FCX to explore their resources. It will be interesting to see what happens to their economy though.

Jun 26 05:00 PM

[ETF Grind:]

Indonesia is certainly a better long term investment than Russia, but if crude goes to 200 a barrel then Moscow is worth a look.

In the long run, Russian population decline will mean its importance in the world economy will be about that of Spain.

Indonesia, on the other hand, is the world's 4th most populous country and should therefore be more important than even Brazil.

Jun 26 08:39 PM

[Alan Young:]

When the author said "Indonesia is a very small market," that should pretty much be the end of the story. Its stock capitalization is less than a tenth of a BRIC; it will be many years before it evolves into something tradable.

Deserving of more attention: South Africa, whose stock cap is already more than India or Russia, and which has abundant resources for future growth.

Jun 26 09:50 PM

[ron_paulite:]

Maybe this is not politically correct, but Russia, China and India have cultures that emphasize scholastic achievements. And Russia is very strong at pure Sciences and Maths. And the people of these three countries are definitely more driven than those in Brazil and Indonesia.

A country doesn't become great because of abundance in natural resources. A country becomes great because of the character of its people.

Jun 27 02:51 AM

[ron_paulite:]

<< Indonesia, on the other hand, is the world's 4th most populous country and should therefore be more important than even Brazil. >>

What is the logic of this?
Just because a country has a bigger population, it is more important???

Jun 27 03:01 AM

[ETF Grind:]

Global incomes are converging, so in the future the aggregate GDP rankings will be the same as the population rankings.


On Jun 27 03:01 AM ron_paulite wrote:

> << Indonesia, on the other hand, is the world's 4th most populous
> country and should therefore be more important than even Brazil.
> >>
>
> What is the logic of this?
> Just because a country has a bigger population, it is more important???

Jun 27 03:08 AM

[jse17:]

Stephen Leeb's, "The Complete Investor" recently advocated an allocation to BRAC - Brazil, Russia, Australia, and Canada. The common denominator here appears to be a rich supply of natural resources and a population base that does not riot over woman not wearing Burkas or failing to stone the infidels etc.

Jun 27 09:25 AM

[Sovestor:]

BRIC, BRAC, BRAIC BRICI BICI, BIACI....at the end of the day, what the most important thing is to keep it simple and low cost...use index funds.

Jun 27 10:41 AM

[WS1835:]

IMHO - I see a fairly certain emergence of "BICA", lol.....

The current BRIC alignment is an apt grouping at the current time, but Russia is really only there due to former glory and its control of Europe's gas supply. Europe continues to diversify their energy base and soon everyone will have nukes so those advantages will mean far less in the future. Combined with a domestic demographic implosion, Russia is headed back its historic status as a second rate behemoth way out in the hinterland of Eurasia.

Similar comments might be made for Japan. After its brief imperial stint last century, its cultural perspective has once again turned inward to the point where being a major power isn't even thinkable. It will remain regional player in the Pacific, but probably little more than that as it too faces demographic challenges.

The future influence of China and India is a done deal, and Brazil is well on its way to dominating trade in south and central america. As the economic clout of the USA and its dependent Mexico fade due to government policy and instability, Brazil's lock on the southern half of the hemisphere will be solid.

So it is pretty safe to bet on "BIC" at the very least. However, I would suggest that there will be a fourth nation in that group shortly after Russia drops out. As mentioned by other commentors, I think that nation will be Australia. Australia isn't as big as the BIC countries, but it has characteristics that will push it to prominence as the hub of worldwide economic activity shifts from the USA/Europe to the Far East. Australia is a serious player on the commodities front and is the sole 'western' presence in SE Asia. (no offense to New Zealand, too small to count)

Its financial stability and resources are already giving it significant policy influence with China and the minor SE Asian nations. Australia has an excellent chance become the 'middle man' for the new economic order in Asia. It is physically situated mid way between India and China and Japan, and politically/culturally it is situated mid way between the Orient and the West. In addition, the Aussies don't have the same geo-political baggage as countries like the UK or USA. As China and India work together to economically develop and unite the Far East, Australia is one of the few western nations likely to be invited to the table.

So get ready for BICA.....or....CIBA...... BIAC.....

Jun 27 10:51 AM

[elliot_mllr:]

Read page M7 of Barrons of June 29th and you'll see what Indonesia has.


On Jun 26 11:13 AM feelofficer wrote:

> A silly game...
>
> Despite Russia's perilous investment circumstance... it ranks as
> a world power rich with technology, resources and population to maintain
> it as a (somewhat) worthy investment.
>
> What does Indonesia have but population?

Jun 27 11:59 AM

[elliot_mllr:]

Australia's role may have been set back by Rio Tinto's rebuff of Chinaclo.


On Jun 27 10:51 AM WS1835 wrote:

> IMHO - I see a fairly certain emergence of "BICA", lol.....
>
> The current BRIC alignment is an apt grouping at the current time,
> but Russia is really only there due to former glory and its control
> of Europe's gas supply. Europe continues to diversify their energy
> base and soon everyone will have nukes so those advantages will mean
> far less in the future. Combined with a domestic demographic implosion,
> Russia is headed back its historic status as a second rate behemoth
> way out in the hinterland of Eurasia.
>
> Similar comments might be made for Japan. After its brief imperial
> stint last century, its cultural perspective has once again turned
> inward to the point where being a major power isn't even thinkable.
> It will remain regional player in the Pacific, but probably little
> more than that as it too faces demographic challenges.
>
> The future influence of China and India is a done deal, and Brazil
> is well on its way to dominating trade in south and central america.
> As the economic clout of the USA and its dependent Mexico fade due
> to government policy and instability, Brazil's lock on the southern
> half of the hemisphere will be solid.
>
> So it is pretty safe to bet on "BIC" at the very least. However,
> I would suggest that there will be a fourth nation in that group
> shortly after Russia drops out. As mentioned by other commentors,
> I think that nation will be Australia. Australia isn't as big as
> the BIC countries, but it has characteristics that will push it to
> prominence as the hub of worldwide economic activity shifts from
> the USA/Europe to the Far East. Australia is a serious player on
> the commodities front and is the sole 'western' presence in SE Asia.
> (no offense to New Zealand, too small to count)
>
> Its financial stability and resources are already giving it significant
> policy influence with China and the minor SE Asian nations. Australia
> has an excellent chance become the 'middle man' for the new economic
> order in Asia. It is physically situated mid way between India and
> China and Japan, and politically/culturally it is situated mid way
> between the Orient and the West. In addition, the Aussies don't
> have the same geo-political baggage as countries like the UK or USA.
> As China and India work together to economically develop and unite
> the Far East, Australia is one of the few western nations likely
> to be invited to the table.
>
> So get ready for BICA.....or....CIBA...... BIAC.....

Jun 27 12:01 PM

[elliot_mllr:]

But Indonesia is a rapidly growing market (and stock market, although the latter is still illiquid) and, unlike China, two-thirds of its output is for domestic consumption, not exports.


On Jun 26 09:50 PM Alan Young wrote:

> When the author said "Indonesia is a very small market," that should
> pretty much be the end of the story. Its stock capitalization is
> less than a tenth of a BRIC; it will be many years before it evolves
> into something tradable.
>
> Deserving of more attention: South Africa, whose stock cap is already
> more than India or Russia, and which has abundant resources for future
> growth.

Jun 27 12:04 PM

[CLH:]

I stick to India and China because they produce something besides holes in the ground which is what Brazil and Russia are all about.

Jun 27 12:08 PM

[Daniel Harr...:]

What you are picking up on is the phenomenon a transitional frontier-emerging market. Indonesia is going from being a frontier market to a fully-fledged emerging economy in its own right. Within that process, there will undoubtedly be hefty sums to be made if you are invested in banks, telcos and insurers there in particular. But it's also worth bearing in mind that much of the likelihood of Indonesia transitioning towards the kind of economy this article envisages probably depends to a big extent on the continual rise of China's economy, and the "trickle-down" process of wealth distribution there.

Jun 27 02:11 PM

[bcncv:]

I agree that Russia should be off the list because its economy is a pure commodity play and has nothing else that it can add to economic relevance.

Still, there are numerous countries I would add to the list long before Indonesia. Turkey is a resurgent power and Poland could potentially be one, if the rest of Europe wasn't such a basket case. How about Chile or South Africa?

Indonesia is simply too fragmented to show sustained, long term growth.

Jun 27 03:56 PM

[pdub271:]

I agree South Africa is interesting, but it's also somewhat a commodities play like Russia. I do like the commodities in South Africa better though (e.g. precious metals), compared to Russian oil. Russia has NG, but I see NG as being best played in the US since we import so much oil and claim we want alternatives like NG

Jun 28 01:46 AM

[ron_paulite:]

So global incomes are converging regardless of the education level and work ethics of the population?

So Timbuktu with low literacy rate, laid-back culture and lowly skilled population will also earn the income per capita as say, Japan or Germany?

The people of India, China and maybe Russia are definitely more driven than Indonesia and Brazil. But that does not matter? All will earn the same income? Aggregate GDP will be determined by population size?


On Jun 27 03:08 AM ETF Grind wrote:

> Global incomes are converging, so in the future the aggregate GDP
> rankings will be the same as the population rankings.

Jun 28 03:22 AM

[Ihatedebt:]

I propose we add both South Africa, Hong Kong, Turkey and Germany. Then we could have SHTGBRICs...

Jun 28 08:18 AM

[LaughingTrader:]

How can a country with negative population growth be considered an emerging market? It seems to me Russia is fading, not emerging. Short term they enjoy clout due to their energy exports, but a rapidly declining demographic will definitely hamper their future growth rates. This affects them in two ways. First, internal consumption will trail off. Second, a shrinking population means there are fewer workers available to replace those retiring, thereby slowing the production of goods and services.

Jun 28 09:44 AM

[drpaul1139:]

This article and the posts are getting dangerously close to the reality of capitalism. www.productequityvalue...

This article is generating lots of interesting points of view but it is the use of GDP and stock markets that interested me. It took a couple of followers to add population to the discussion.

Here is what is coming to make it necessary to invest in new types of country funds consisting of totally new types of corporations benefiting the consumers on the planet earth rather than consumers in a particular country making revenues and earnings predictable.

With the communicating technologies and two variables no need to wait until local businesspersons bring first world economic parity to its citizens where cultural and educational idiosyncrasies are the hindrances to local growth.

Here is what I mean. Coming is a new type of corporation using Product Equity Value© an accounting measure that calculates the degree of product equity value contained in a product or service.

In a nutshell what we know now is that when 46% to 69% of the equity of new public corporations are given free to a precise number of customers simultaneous to the purchases then the price of the free stock is ALWAYS greater by 3, 5, 11, 20, and over 40 times the price of the product or services by the formula x=(a*b)/c where:

x) is stock price,
a) is revenue,
b) is earnings as a percentage of revenue, and
c) is an acceptable rate of return

This word ‘free’ is a two edged sword to those not steeped in economics and the finance required to trace the value creation process from consumers and back to the consumers.

The shares only look as if they are ‘free’ to the novice. But the enlighten financiers knows that if the customer does not buy the product or services then the formula x=(a*b)/c could not produce the multiple value…so why not share this multiple value with the consumers to guarantee sales by finding out exactly how to do this?

Now from a distance with just two variables a new type of businessperson can target say 14 million people within a geography with products and services produced locally but with the stability and the transparency of any top ten money centers.

The new customer centered business is incorporated and the shares registered and listed in any country and on any favorable exchange. Plug a $1 into the formula with 63% earnings, 61 million shares and a 3% rate of return to see the point. Do not forget the 14 million purchasers and then multiply the share price by 3 shares.

Did you see how fast 3.6 billion cell phones fell into the hands of people who can talk but cannot read making Product Equity Value© delivery possible?

Well imagine with Product Equity Value© 3.6 billion people being able to buy the latest cell phone, computer, TV, food, clothes, two wheelers, dental etc for x$ and have instantly 3, 5, 11, 20, and even 40 times more Product Equity Value© deposited to their account each time they consume with new types of global corporations?

What do you think the value of your country fund will be now?

Read “Would you buy a $30 product to have $600 worth of tradable shares in an IPO?” www.productequityvalue...

Jun 28 04:12 PM

[jayminho:]

russia is a one trick poney. without gas.. no russia!

Jun 29 02:32 AM

[Moto:]

I don't know how one determines if one group of people is more driven than another. I agree character is important and that is why I fear the fall of this great country we live in.


On Jun 27 02:51 AM ron_paulite wrote:

> Maybe this is not politically correct, but Russia, China and India
> have cultures that emphasize scholastic achievements. And Russia
> is very strong at pure Sciences and Maths. And the people of these
> three countries are definitely more driven than those in Brazil and
> Indonesia.
>
> A country doesn't become great because of abundance in natural resources.
> A country becomes great because of the character of its people.

Jun 29 05:29 PM

[bluemoo6:]

would one consider replacing Russia with Australia - ie BICA. Australia has similar commodity play but at much lower risk compared with Russia

Jul 01 05:45 AM