When building a portfolio, are BRICS still a buy?

A bumpy year for BRICS, but still a good investment; more than just a cute acronym

Associated Press

NEW YORK (AP) -- Down, down, down. That's the direction of stocks in the BRICS economies, which were investment darlings last year but now seem deadweights.

In stock market terms, it's been a disappointing year for the emerging-market powerhouses that make up the cute acronym: Brazil, Russia, India, China and South Africa. Almost all the major stock indexes are lower in the five countries. The market in the U.S., by contrast, is up 15 percent.

But BRICS, for a lot of reasons, are still a good buy to many investors, who think this year's declines are just a blip and not a long-term trend.

The economy is growing in every BRICS country. China expanded at a rate of nearly 8 percent last year, lower than previous years but enviable to most everyone else, including the U.S., which grew just a hair above 2 percent. Growth in the BRICS countries will continue to outstrip that of the developed world, and even that of overall emerging markets, for at least the next five years, according to the International Monetary Fund.

Indeed, what made emerging markets so attractive in the first place — namely, untapped potential — is still in ample supply in the BRICS. For most, their workforces are young and expanding; their poverty rates are falling; their life expectancy is growing. Together, they account for about 42 percent of the world's population. Their demographics are "way, way better" than the developed world's, says Derrick Irwin, portfolio manager at Wells Fargo Advantage Funds.

And as for the troubling declines in the BRICS stock markets this year? Not to worry, say Irwin and others. The stocks have room to grow.

Irwin says emerging-market countries, which include the BRICS, represent about 29 percent of the global economy but just 12 percent of global stock market value. That means the emerging-market stocks are "punching beneath their weight," he says, and "still maturing."

The U.S., on the other hand, is punching above its weight: It has 47 percent of the world's stock market value, but makes up less than 24 percent of the world economy, according to calculations using the MSCI All Country World Index.

Luiz Carvalho, managing partner at Tree Capital, thinks that concerns about the BRICS stock markets are overblown and are already accounted for in the lower stock prices. He believes they're set to grow.

The BRIC term was invented in 2001 by Jim O'Neill, the well-known former Goldman Sachs economist who retired last month He needed a shorthand way to refer to four big, developing countries that seemed poised to drive global growth. It was just BRIC back then, not BRICS, because O'Neill didn't include South Africa.

The acronym caught on and was embraced by the countries. Brazil, Russia, India and China held a BRIC summit in 2009. Two years later, they invited South Africa to join.

Investors caught on, too. From 2001 to 2007, the BRICS countries clocked better stock gains than the world's most industrialized countries. But the BRICS beat the developed countries only twice in the five years from 2008 through 2012, as measured by the MSCI BRIC index and the MSCI G7 index, which encompasses the seven most industrialized countries in the world.

For investors, it's important to remember that even if the BRICS are lumped together in hearts, minds and analyst reports, they still should be examined individually.

"Not all BRIC countries are created alike," says Anthony Chan, chief economist for Chase Private Client. For short-term prospects, he likes China best, with Brazil a distant second. He has concerns about South Africa.

Still, he's optimistic about all the BRICS. If they "pursue the right policy paths," he says, their growth rates will be "much more exciting than the developed markets'."

Here's a glance at each country.


Declining demand for iron ore and other raw materials has hurt Brazil. The central bank has tried to stimulate the economy and met only limited success. Growth was less than 1 percent last year and roughly 3 percent in 2011, a disappointment after growth of nearly 8 percent in 2010.

Some analysts think a turnaround is near. The government has been trying to trim energy costs and strengthen investment in infrastructure, according to the World Bank. Much depends on China, which is Brazil's biggest trading partner.

Growth is expected to rise to 3 percent this year.

Stocks: The Brazil Bovespa is down 15 percent this year, after rising 7 percent last year.


Russia depends heavily on oil and gas exploration and production, so it has suffered as prices have flat lined. Labor strikes and a lack of business investment have derailed productivity. Its population, unlike in other BRICS, is shrinking.

Growth has been around 3 or 4 percent for the past three years, roughly in line with the world average but still below where it was before the financial crisis. Growth is expected to be about 3 percent this year, unchanged from 2012. The World Bank says the country needs to shrink the government's involvement in the economy, clamp down on corruption and map a plan for its aging population.

Stocks: The MSCI Russia index is down 13 percent this year, after rising 5 percent last year.


Growth dipped to 4 percent last year, which is slow by India standards. It's possible that the economy is just taking a breather after years of blistering growth, experts say. India's growth eased to 8 percent in 2011 from 11 percent in 2010.

Some investors see deeper problems, though. There are worries that the country, despite some recent changes, hasn't done enough to open itself to foreign investors. Others are waiting to see how elections fare next year, and wonder if a new government could stoke stability and tamp corruption. As more workers move from the countryside to the cities, it's vital that the country spend more on infrastructure like roads and the electric grid. India's economy is projected to grow 6 percent this year.

Stocks: The India SENSEX is flat this year, after rising 26 percent last year.


China has powered forward as it moves toward more of a market-based economy. It propped the world economy in the depths of the financial crisis, growing rapidly even when the economies of most other countries shrank.

In 2012, China's economy grew about 8 percent. That was down from the 9 and 10 percent range of the previous four years but still one of the fastest rates in the world. Chan, from Chase Private Client, thinks the slowdown reflects the country's efforts to shift from an export-based economy to one focused more on consumer spending. The government is pumping more money into social programs, which should also spur consumer spending. Growth is expected to be 8 percent this year.

Stocks: The Shanghai Composite Index is down 3 percent this year, after rising 3 percent last year.

—South Africa:

South Africa has successfully transformed itself from apartheid to a democracy with modern infrastructure. Growth, however, has been around just 2 or 3 percent for the past three years, less than the world average. It is expected to pick up slightly this year, to 2.8 percent from 2.5 percent.

The country is saddled with a devastating unemployment rate of 25 percent, and it's expected to get worse. The country was hurt by an electricity crisis in 2007, which was caused by aging power plants. Then the global financial crisis reduced demand for South Africa's raw materials, including gold, diamonds and platinum. This year, the mining industry has been plagued by violent strikes. High rates of HIV and AIDS are straining the health care system, and deep inequalities between the rich and poor are hindering growth, according to the World Bank.

Stocks: The MSCI South Africa index is down 5 percent this year, after rising 21 percent last year.


View Comments (5)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • 1 Tip To Lose Belly Fat

    It's Hollywood's Hottest Diet And Gets Rid Of Stubborn Fat Areas Like Nothing Else.

  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • Only 4 states will see cuts to food stamps

    Cuts to the nation's food stamp program enacted this year are only affecting four states, far from the sweeping overhaul that Republicans had pushed, an Associated Press review has found. As a result, it's unclear whether the law will realize the estimated $8.6 billion in savings over 10 years that…

    Associated Press
  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance
  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

  • Best Womens Wrinkle Creams 2014

    Mom reveals simple wrinkle solution that has researchers very excited. Try this free solution today to look and feel years younger.

  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

  • Gold loses luster on Fed; Barclays cuts forecast

    Barclays cuts gold forecasts, sees increasingly bearish backdrop Bloomberg MA MB MC MD ME SAN FRANCISCO (MarketWatch) — Gold prices dipped Wednesday on concerns about a stronger dollar ahead of the Federal Reserve policy statement and in response to Barclays lowering its gold forecast.

  • Fed renews zero rate pledge, but hints at steeper rate hike path

    The Federal Reserve on Wednesday renewed its pledge to keep interest rates near zero for a "considerable time," but also indicated it could raise borrowing costs faster than expected when it starts moving. In a statement after a two-day meeting of its policy-setting Federal Open Market Committee,…

  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.
  • Tired of Living Paycheck to Paycheck?

    New website reveals how to save $1,000's when you're living paycheck to paycheck. See exactly how.

    AdChoices Media ForceSponsored
  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • Boeing may have outfoxed Musk, but it could have bigger problems

    Elon Musk is arguably one of the greatest entrepreneurial minds of the 21st Century, but he was outsized an old school aerospace giant. Boeing won the bulk of NASA’s contract for a space taxi.  One of the other companies vying for the deal is SpaceX, the company headed by Tesla’s Musk, will get a…

    Talking Numbers
  • Russian billionaire placed under house arrest

    A billionaire Russian tycoon was placed under house arrest Tuesday in a money-laundering case that has drawn comparisons with a government crackdown on Russia's Yukos oil company more than a decade ago. The Investigative Committee, Russia's top investigative agency, said that Vladimir Yevtushenkov,…

    Associated Press
  • Romney-Sized IRAs Scrutinized as Government Studies Taxes

    The preliminary report attaches data to an issue that drew attention during the 2012 presidential campaign, when Republican nominee Mitt Romney reported an IRA worth $20 million to $102 million. Senate Finance Committee Chairman Ron Wyden said many of these "massive" accounts come from deals…

  • The Government Keeps Helping People Buy Failing Cold Stone Creamerys

    Would you loan someone money to buy a Cold Stone Creamery franchise if you knew that more than a quarter of those loans default? Over the last decade, franchisees in the Cold Stone Creamery ice cream chain defaulted on 29 percent of working-capital loans backed by the government, costing taxpayers…

  • Mortgage Rates Hit 3.00% APR (5/1 ARM)

    $225,000 for $949/month. No points. No obligation. Get multiple mortgage offers in minutes. Can't hurt to look. Rate quotes are Free!

  • Facebook Is Hiding Important Information From Investors

    Facebook Is Hiding Important Information From Investors Facebook.com/sheryl On July 23, when Facebook reported its earnings for the second quarter, the company stunned everyone. Revenues were $2.68 billion, up 67% from the same quarter during the year

    Business Insider