Courtesy of The Financial Times, an article on the new  S&P CIVETS 60 – a tradeable index of 50 stocks from the next-generation EMs of Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.

“…Among the post-BRIC acronyms competing to encapsulate the prospects of other chunks of the emerging world, CIVETS is gaining the most ground.

On Tuesday, S&P joined the bandwagon by launching S&P CIVETS 60 – a tradeable index of 50 stocks from the next-generation EMs of Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. Even more of a mixed bag than the BRIC quartet of Brazil, Russia, India and China. But CIVETS equities have outperformed the BRICs in recent years. And for investors, that’s what counts.

Invented by the Economist Intelligence Unit and taken up last year by HSBC, CIVETS has a decent pedigree.  Michael Orzano, Associate Director of Global Equity Indices at S&P Indices, said in a statement:

With reasonably sophisticated financial systems and rapidly maturing equity markets, the six CIVETS countries show all the signs of becoming increasingly important to international investors. …The launch of this Index underlines the leadership we’ve shown in building out our family of emerging/frontier market and BRIC indices over the last decade.

The index is composed of 10 liquid stocks in each of the six countries, headed by South Africa’s Sasol energy group and MTN telecommunications company, Indonesia’s Astra combine, and Turkiye Garanti Bankasi, the Turkish bank.

S&P says the index is a modified market capitalization-weighted index, with no country having a weight of more than 30 per cent at each semi-annual rebalancing.  The total market capitalisation of these countries is $684bn but the market value accessible to foreign investors (that is the available free float) is $331bn.

As of March 31, 2011, South Africa represented 31.61 per cent of the index (slightly above the 30 per cent because of stock market movements after balancing) , followed by Indonesia (28.14 per cent), Turkey (21.01 per cent), Colombia (12.49 per cent), Egypt (5.68 per cent) and Vietnam (1.07 per cent).

S&P says the CIVETSs have a total population of over 580 million and share some key characteristics: their economies are relatively diversified, not overly reliant on natural resources, and with increasing foreign direct investment.

Even that’s stretching a point. South Africa has long been an economy driven by its natural resources. Oil-rich Colombia and Indonesia are hardly lacking in minerals either.

Meanwhile, post-Mubarak Egypt may offer lots of future potential but it is not currently seeing “increasing foreign direct investment”.  Political unrest has, for example, disrupted one landmark deal – plans by Sweden’s Electrolux to buy Olympic Group, the country’s biggest home appliance maker, for E£2.2bn ($370m).

The differences are too big to be ignored. Vietnam is a Communist dictatorship; Egypt an authoritarian state in a phase of reform;  Turkey is a democracy of good enough standing to be negotiating European Union membership.

But none of this undermines the value of a CIVETS index. Many investors in EMs want a straightforward way of securing geographical spread to reduce the risks of investing in only one or two countries.


And investment performance matters. As the chart above shows, since June 2007, the CIVETS have outperformed both the S&P BRIC index and the S&P emerging markets index. The CIVETS have done particularly well in the last year, with a gain of nearly 20 per cent in the year to March 31.

So it may be like herding cats, but S&P is right to try to make a team out of the CIVETS.

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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.