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Nick Timberlake
Head of Emerging Equities Management - London
HSBC Hablis Partners (UK)
According to projections by Goldman Sachs, the economic weighting of the BRIC countries (Brazil, Russia, India and China) could outstrip that of the current G6 in less than 40 years, with China and India taking 1st and 3rd place respectively among the world's major economic powers. This increase in power will go hand in hand with marked growth in the middle classes. By 2025, there could be as many as 200 million people with income in excess of 15,000 dollars a year.
Each country has its own specific dynamic and characteristics, which is why it makes sense to combine them.
Brazil has attractive valuations and its macro-economic fundamentals are improving.
Russia is experiencing sound growth, but the pace of reform is slow. On the other hand, companies are cheap, especially in the energy sector.
India should continue to post strong growth, driven by domestic demand. In addition, corporate governance regulations have improved significantly.
Finally, China continues to record heady growth, and the development in its infrastructure is impressive. The question as to whether the economy is set for a hard or soft landing no longer applies, as the economy is still soaring. Valuations are reasonable, and the market has considerable upside potential.
The stock markets have started to reflect the healthy growth outlook for these markets, but their potential has not yet been exhausted. Average earnings for BRIC companies are now higher than in the US, with dividend pay-outs ranging from 1.4% in India to 3.3% in Brazil. What is more, the low correlation between these four markets makes it possible to improve the portfolio's risk/return profile significantly.
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