The Next BRIC Thing (2)

Via The Financial Times, an interesting article on the seemingly endless competition to coin a catchy new group name for some or all of the emerging markets.  As the report notes:

“…The ways of squeezing the relevant countries into acronyms have been well and truly flogged. So it’s nice to see a new approach: “The 7 per cent club”.

It’s been cooked up by Standard Chartered and is different because it doesn’t fix who’s in the club and out; instead it sets a bar for entry and allows countries to climb in or fall out depending on how their economies fare.

The bar is annual GDP growth of 7 per cent or more for an extended period. And as StanChart explains:

At 7 per cent [annual] growth, an economy doubles in size every decade and more than quadruples in a generation. After three decades an economy growing at 7 per cent will be twice as large as one achieving 5 per cent.

So who’s in based on the ten years up to 2008? StanChart highlights China, of course, with average annual growth of 9.7 per cent. Then India, Vietnam, Ethiopia, Uganda and Mozambique.

But turn to the appendix of its “7 per cent club” report and you find some more unusual contenders: Azerbaijan and Turkmenistan (which both posted whopping average annual growth rates of over 15 per cent thanks to their oil and gas) and their central Asian neighbours Kazakhstan and Tajikistan; Angola, Sudan, Chad, Sierra Leone and Rwanda from Africa; and Cambodia too.

In the fluid world of this club, which resembles a football league with a variable number of members, the bank says likely promotion candidates in years to come are Indonesia, Bangladesh, Nigeria and Tanzania.

Russia, it seems, is less favoured, in spite of its 1998-2008 growth rate of 6.8 per cent; and so is Brazil, even though its growth right now is far ahead of its ten year average of 3.3 per cent.

You can argue that all these arbitrary groups are little more than marketing gimmicks for investment banks.

The Bric acronym (coined by Goldman Sachs) helped to focus the attention of corporates and portfolio investors on the weightiest emerging markets. It even led to the creation of an informal political bloc (and yes, of course, this blog’s name was inspired by it too).

But from an investment perspective does any of the macro-level slicing and dicing contribute to the kind of analysis that people need to decide where to invest their money? Probably not.

Still, the in-built flexibility of the ‘7 per cent club’ will avoid incessant debate like that over whether the Bric acronym includes the right emerging markets, or indeed makes any sense at all. As StanChart says:

Focusing too much on Brics has its limitations. One is that there are several other countries that are not far behind and could plausibly be in the top four within a decade or two, most likely displacing Russia or possibly Brazil.

Hence the debate over whether Bric should in fact be Brici (with Indonesia), Brick (with South Korea), Basic (replacing Russia with South Africa – or rather l’Afrique du Sud) or even Crim (with Mexico but not Brazil).

It also avoids the biggest downside of HSBC’s Civets: that it makes you think of a cat-like wild creature whose glands non-animal lovers harvest for its musk (strange they didn’t anticipate that one).

There was the ‘Next 11‘ too. But what happens when those countries begin to definitely ‘arrive’? Will there be a grim countdown of the ones left behind: the Next 10, 9, 8 etc? Or will they all end up as the Current 11, which doesn’t sound very exciting at all?

Not only is the 7 per cent club a living beast, the rules mean that at some utopian point it could contain everyone. Or if the whole world economy is dragged into the second abyss of a double-dip recession, it could presumably have no members at all.”

This entry was posted on Monday, September 20th, 2010 at 12:14 pm and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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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.