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What is a BRIC, anyways?

By: Daniel Pereira
Posted: 5/6/2011 3:52:00 AM
Referenced Stocks: EWZ;FXI;GE;RSX;TTM

For the last couple of years, BRICs have been the hottest buzzword in the global markets - day traders and long-term investors alike couldn't get enough of assets in the booming economies of Brazil, Russia, India and China (some include South Africa as the fifth of five BRICS).

Though it seems to make some intuitive sense, a more careful look at the BRIC phenomenon makes the grouping look a bit more arbitrary. China ( FXI ) and Russia ( RSX ), for instance, may appear superficially similar - they share a Communist past, a more recent dedication to capitalist economics and a heavy-handed state.

But China is a growing nation, with a rising military profile and a voracious appetite for raw materials, while Russia is struggling to cope with its decline of the last three decades and survives largely by controlling and exporting oil, gas and the products of its mines.

Similarly, Brazil ( EWZ ) is a major commodity exporter, selling soybeans, sugar and now crude oil to the rest of the world - particularly China. India's economy is split between its vast agrarian poor and an English-speaking knowledge and technology sector, though industrial giants like Tata ( TTM ) are now challenging Western conglomerates like GE ( GE ), GM (GM) and Siemens. 

Looked at from this perspective, the BRICS are more an agglomeration of large nations that, for one reason or another, may outperform the United States in the coming years. They may share some common goals - in the foreign exchange market, for instance - but their interests are diametrically opposed in others. Brazil and Russia, with new oil and gas fields coming on line, will benefit if energy prices continue to rise. China, on the other hand, is battling inflation and fears unrest if its lower and middle classes find that the cost of living continues to outstrip wage increases.

It may be tempting to simplify emerging market investing to BRICS and non-BRICS - but the reality is a lot more nuanced. The author is long BRF, EWS and PBR.