In the past 10 years investment in emerging markets has grown from something attempted by only the most speculative investor, to a strategy that deserves consideration for many portfolios. Just a decade ago, if I had mentioned the BRIC (Brazil, Russia, India, & China) countries, chances are you would not have had any idea what I was speaking about.
The term BRIC became popular around 2001 when Goldman Sachs released a report detailing their long term outlook for Brazil, Russia, India, and China. One of the main points that came from this report was the belief that by 2050 BRIC country's economies would surpass that of the combined economies of the current richest countries of the world. When you take a look at the numbers it is easy to see why we can no longer overlook the emerging markets.
Currently the BRIC countries make up 40% of the Global Population with GDP’s that place all of them in the top 10 in the world. The growth of the middle class in these countries will lead to even greater consumption; in fact, some estimates call for half of global consumption to come from emerging markets this year.
Historically, investments in emerging markets have been considered risky. There were questions on the economic data provided by the governments, liquidity concerns, and little coverage by analysts. These concerns, although still present, have been lowered over the years as these markets have become more open and transparent. We still don’t recommend investment in these areas without a firm understanding of the risks involved.
Considering all of this, we feel that it makes more sense to be a supplier to these markets versus a direct investor. This should allow us to receive the benefits of emerging market investment while lessening some of the concerns I mentioned earlier.
Two of the ways we are doing this are through investment in Large-Cap Multi National Companies and in Natural Resources. Both of these asset classes will benefit from the continued growth of the middle class in the BRIC countries and other emerging markets. A growing demand for electronics, clothing, furniture, vehicles, and other luxury items will benefit large companies with a global footprint.
Another result of a growing middle class will be the demand for additional infrastructure construction. This will lead to additional demand for natural resources that will be used to construct roads, railways, power plants, and transmission lines.
While these are not the only ways to make investments in these markets, we feel it will allow investors exposure through investing in companies they may already be familiar with.
If you would like to discuss how emerging market investment plays a role in your overall investment strategy, please give me a call.
