2011 was not a particularly good year for Brazil, Russia, India and China, a.k.a. the BRICs.
The iShares ETFs for China and Brazil are down about 20% each this year while the Market Vectors Russia ETF is down almost 30% and The Indian Fund is down about 50%, a poor showing vs. flat-to-slightly higher returns for U.S. blue chip indexes.
For some insight on the BRIC's 2012 outlook, I checked in with the man who created the now ubiquitous term: Jim O'Neill, chairman of Goldman Sachs Asset Management and author of The Growth Map.
In addition to being viewed (rightly or wrongly) as a single asset class, the BRICs are all dealing with "having to do to more things to be more and more adult," O'Neill says. More practically, each of the BRICs spent much of 2011 trying to quell inflation.
"The good thing is it looks as though inflation is turning in all four," he says, predicting BRIC stocks may continue to lag the U.S. in the first half of 2012, but could be poised for outperformance in the second half.
One key to that forecast is O'Neill's belief that China won't have any kind of "landing" -- hard or soft -- in 2012. "We all talk in such simplistic extremes," he says. "China's not going to land. China's going to keep traveling."
Contrary to concerns raised by (among others) hedge fund manager Jim Chanos, O'Neill remains upbeat about China's property market, estimating another 260 million Chinese will be moving to urban areas in the coming decades. "China's only half-way through urbanization so there's a lot more house building to be done. Possibility in cities that none of us even know the names of yet."
While conceding China's overall growth rate must slow from the pace of the past decade, O'Neill is increasingly bullish about growth of its domestic economy.
In the next 15 years, Goldman estimates 200 million new luxury goods purchasers will emerge in China, where consumers are already major purchasers of global brand names such as Louis Vuitton, BMW, Tiffany and the like.
As for the other BRICs, here's a synopsis of O'Neill's analysis:
Russia: Despite obvious political and demographic challenges, Russia has the potential to have a higher GDP per capita than the other BRICs, higher even than most other European countries. "If Russia fulfills its economic potential, it will create all sorts of interesting and complex political and social issues for the European Union and the world," he writes.
India: Beset by slowing grow, crippling bureaucracy and staggering poverty, India faces the most obvious challenges among the BRICs. "I'm assuming things will get better from here, but in order for India to deliver on its potential, they've got to get a lot better," O'Neill says. "And that I'm not so sure about. I'd rather wait to see the evidence rather than just assume it's going to happen."
Brazil: When O'Neill's team first unveiled the BRIC concept in 2003, Brazil was the most controversial member, he recalls; now, its economic growth is too often taken for granted. But Brazil must deal with a currency that's "far too strong" for the country's manufacturing sector. Dampening the real without triggering inflation and maintaining strong growth while lessening the government's role in the economy are the big challenges for the South American giant, he says.
Check the accompanying video for more of O'Neill's BRIC analysis and see also: