The Next BRIC Thing

In theory the “next 11” sounds like a sure thing. In the long term it probably will be. In the short term, recent events in Egypt highlight how bumpy the road will be.

Ever since Goldman Sachs’ Jim O’Neill coined the term BRIC (Brazil, Russia, India & China) back in 2001 the investment industry has been falling over itself to come up with the next big thing.

Step forward Jim O’Neill. That’s right, he appears to have done it again. His newest grouping is called the “Next 11”. Not quite as catchy as BRIC, but it still seems to be taking hold.

He describes this grouping as a “diverse group of countries” which are bound together by their “large populations, superior growth potential and strong domestic consumption story”.

The members are Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam.

The long term case is certainly compelling. These markets start from a lower base, they have favourable demographics and have huge populations waiting to consume.

In fact, a recent forecast from BP predicts that 93% of the growth in energy use over the next 20 years will come from countries that are not currently OECD members (it’s ok, it’s a growth report not a safety report so we can take it seriously).

But while the argument is strong, particularly for countries like Vietnam and Turkey, the risks are high.

This been clearly demonstrated in recent weeks. Firstly worries over Nigeria’s fiscal prudence and falling foreign exchange reserves resulted in lower than expected demand for it’s first sovereign bond issue. Then came the upheaval in Egypt, which caused the benchmark EGX30 index to fall 11% in one day last week.

Conclusion – Long term, allocating to these markets makes sense for many investors, especially if you have time on your side. However, only do so with your “risk capital” and ideally drip-feed your money in over a period of time.

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