Jim O’Neill has a lot to answer for. In 2001 the British-born Goldman Sachs economist and senior executive coined a term to describe the resurgent economies of Brazil, Russia, India and China - "Bric".
Ever since, rival economists have been seeking to replicate that achievement by dreaming up sobriquets for other groupings of emerging economies. But none have stuck quite like Brics did. Some like Goldman Sachs Next 11 have turned out to be a very mixed bag for investors while Wim Buiter's 3G countries (global growth generators) remain a largely untested commodity.
The latest investment group to have a stab at it is Fidelity. It has come up with the term Mint - which the Boston-based asset management firm tells us, in a press release, stands for Mexico, Indonesia, Nigeria and Turkey. Fidelity reckons these four emerging economies will be the “next tier down” from the Brics, and suggests that investing in them will prove to be a passport to riches.
The Independent is not quite so sure. In an article published on May 5, the UK-based newspaper said "mints just make us want to suck.”
However, whilst the "Indy" remains a newspaper I respect, it is probably being a litte harsh here.
In its Mint release, Fidelity said Indonesia is the most similar of the Mints to the Brics, given its 245m population (bigger than that of either Brazil or Russia). The fund manager also pointed out that in December 2010, the Jakarta government declared its ambition to turn Indonesia into one of the world’s 10 largest economies by 2025. If it succeeds, Fidelity says "investing in Indonesian assets early on could prove to be very rewarding".
Fidelity said that
“The Turkish economy has bounced back very strongly since the global downturn, growing by an estimated 8.1% in 2010”.
As I pointed out in a blog post in August 2010, the country was fortunate to "get its crisis in early" following an IMF bailout in 2001, and subsequent structural reforms and bank regulatory tightening meant the strategically well-placed economy weathered the storm far better than many other European nations when the global economic tsunami struck in 2008. Fidelity's Nick Price added that the country is also poised to benefit from favourable demographics, “with around a quarter of the country’s 70m plus population under the age of 15.”
Fidelity believes that the combination of having Africa’s largest population and being endowed with natural resources stands Nigeria in very good stead and urges readers to avoid stereotypical assumptions about Africa. Price said:
“Countries such as Nigeria offer good diversification and low correlation to other more established emerging markets. I find some of the most interesting opportunities in the consumer-related sectors. The banks in Nigeria are now highly regulated, well capitalised and set to benefit from the penetration tailwind that exists with one of the lowest levels of retail credit penetration in emerging markets.”
He expressed optimism for the reforms put in place by the recently re-elected president Mr Goodluck Jonathan - but I didn't spot any reference to the widespread corruption that some argue continues to plagues the West African nation. According to an article published by Timbuktu Media,
"The list, announced by the Berlin based anti-corruption watchdog, showed that Nigeria is now ranked 134, dropping from its 130 position in 2009 and 121 in 2008."
On Mexico, Fidelity's Alex Duffy said:
“We have a fairly positive outlook on the US recovery, so Mexico stands to benefit as a result.”
While the Fidelity press release failed to mention the risks of local currency appreciation and inflation faced by most emerging markets, described in this recent article from the Wall Street Journal, it does include the caveat that “as with all emerging markets, investors need to consider the associated risk factors. Recent instability in the Middle East and North Africa has highlighted the higher susceptibility to political risk, in particular."
So, as they said in Rome, there has to be a degree of caveat emptor.
Further reading on investing in emerging economies:
- Islamic Capital Markets: The Role of the Sukuk by Rodney Wilson
- Turkey remains one of world's hottest emerging markets, despite fiscal slip-up by Ian Fraser
- Review of 2010: Emerging markets by Ian Fraser and Anthony Harrington
- Betting on Chinese equities as short-sellers predict Sino armageddon by Ian Fraser
Tags: asset management , BRICs , currency wars , emerging markets , fund management , Indonesia