The term “BRIC” is a marketing creation of Goldman Sachs (GS), but even if it’s gimmicky, it tells you how big of an emerging markets booster the bank has been over the years.
The firm recently put out an excellent report on its “Emerging Market Nifty 50,” and in several charts, it tells the story of why the opportunity abroad is so enormous.
See the full presentation >>
Since 2001, we have focused on the increasing importance of BRICs countries in the
global economy; we believe they remain on a trajectory that will see their combined
output reach 50% of the G7 level by 2020 and parity between 2030 and 2050. The
economic downturn of the last 24 months has accelerated that realignment of the
global economy; while growth slowed in all major regions, it has rebounded most
quickly in emerging economies, widening the disparity between emerging market
growth and that of developed markets. In this paper, we outline how continued
strength in emerging economies is driving growth in consumer classes as well as
continued infrastructure investment in the BRICs. We identify two groups of
companies that can help investors own this theme – one from the developed markets,
the other within the emerging markets.
Exposure to those fast growing economies is increasingly becoming a sine qua non of
global portfolios. Investment opportunities exist in both emerging market equities and
through developed market equities with significant exposure to those economies.
We have developed two new baskets to help identify the potential winners in this exciting
realignment of global growth opportunities. We describe both as a New Nifty 50. The
concept harks back to the so called ‘Nifty 50’ US stocks – the leading group of global
multinationals that dominated the US markets in the 1960s and early 1970s. This new Nifty
50 offers a vision of 50 companies from the developed markets that we believe are best
placed to benefit from the BRICs super cycle, as well as a Nifty 50 of BRICs companies that
are likely to emerge as the new winners in the global markets.
Nothing is permanent in the global economy. Just look at where GDP was coming from in 1800, 1850, and now. It's raidcally different. And over the next 50 years, things will change radically again, to a world where China and other emerging markets play a much bigger role.
You may think of the BRIC nations as being merely export-based, but that's a rapidly-changing stereotype. Export's are steadily trending higher.
As an example of export growth, just look at Germany, where volumes are already back to pre-Lehman levels.
Another belief is that China is only interested in importing commodities (oil, iron ore, etc.). But that's not true. Non-commodity imports are rising sharply.
Contrary to widespread belief, there are consumers in emergig markets, and retail has picked up considerably.
Though it is true that savings rates have, and will probably remain quite high.
This chart may be hard to read, but it basically shows that as these countries get richer, the national share of discretionary spending will rise.
On the bottom, from left to right, it measures a 'wealth band' from poor to rich. And the colour bars represent spending, with blues representing 'necessities' and the dark bars signifying discretionaries. The richer you are, the bigger those dark bars become.
All across emerging markets -- not just in China -- the great migration from rural to urban is happening, and that will have a big impact on consumption patterns.
This is, perhaps, one of the most interesting charts. It shows how much bigger equity-to-GDP is in countires like the US and Japan compared to China or Brazil. No doubt, a big part of the reason for this is that in developing economies, much more of the economy takes place in less official, non-corporate settings.
This doesn't necessarily mean bullish things for stocks, since the market cap-to-GDP gap will close by expansion of the stock market, not necessarily by increased valuations. But it's great news for the likes of Goldman, which has years of IPO underwriting ahead of it.