‘BRIC’ Creator To Add Newcomers To List

Courtesy of The Financial Times, an article on how Jim O’Neill, who coined the term “Bric”, is about to redefine further emerging markets and will explain the new approach to clients this month.  As the article notes:

“…The chairman of Goldman Sachs Asset Management plans to add Mexico, South Korea, Turkey and Indonesia into a new grouping with the Brics – Brazil, Russia, India and China – that he dubs “growth markets”.

“It’s just pathetic to call these four emerging markets,” he told the Financial Times.

The new approach will involve looking at fresh ways to measure exposure to equity markets beyond market capitalisation – for example, looking at gross domestic product, corporate revenue growth and the volatility of asset returns.

“Some emerging markets should be traded as emerging markets – they are illiquid and small, and investors should remember that,” said Mr O’Neill.

“But any economy from the emerging markets world that is already 1 per cent of global GDP or more, and has the potential for that to rise, has the ability to be taken seriously.”

The Brics have frequently been dismissed as a marketing ploy. However, the nine-year-old term has spawned government summits, investment funds, business strategies and a host of countries keen to join.

Mr O’Neill, chief economist at Goldman until four months ago, said the term “emerging markets” was no longer helpful because it encompassed countries with too great a range of economic prospects.

Mexico and South Korea account for 1.6 per cent each of global GDP in nominal terms. Turkey and Indonesia are worth 1.2 and 1.1 per cent respectively.

China is the world’s second-largest economy, at 9.3 per cent of global GDP (the US is worth 23.6 per cent), while Brazil, India and Russia combined provide a further 8 per cent.

The concept of “emerging markets” was coined 30 years ago by Antoine van Agtmael, then a World Bank economist and now chairman of Emerging Markets Management, an investment firm. His aim was to replace patronising phrases such as “third world”.

Like Mr Agtmael, Goldman and Mr O’Neill have little control of the Bric term as its popularity has spread. Last month, Chinese media reported that its government had invited South Africa to join a Bric summit this year.

Mr O’Neill has strenuously resisted calls to add countries, including South Africa, to his Brics. His criteria for the group are based around a country’s size, demographics and its growth potential. South Africa currently accounts for 0.6 per cent of world GDP.

“South Africa can be successful, but it won’t be be big,” he said.

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.