BRIC to MINT: Fund Managers Criticise Grouping of Countries

Some fund managers have argued that returns on investments in emerging markets are not guaranteed by the grouping of countries under any form of acronym. According to the fund managers, acronym investment, putting money into small groupings of markets which often have little in common beyond a broad economic concept, is giving way to acronym anxiety. Former Goldman Sachs economist, Jim O’Neill had in 2001 created the BRIC family made up of Brazil, Russia, India and China. But Reuters noted many of the above mentioned countries and others lumped together under separate acronyms have until recently, enjoyed turbo-charged economic growth. The news agency however noted that underperforming local stock markets had led fund managers to flee what had been fashionable groupings. Assets under management in BRIC funds fell to €9 billion at the end of last year from €21 billion at the end of 2010, according to Lipper data, while assets under management in broader emerging equity funds have grown in that time. Undaunted, O’Neill recently coined a new acronym called the MINT group – Mexico, Indonesia, Nigeria, Turkey – as the next giants after the BRICs. O’Neill stressed that MINT – like BRIC before – is an economic, not an investment, concept and he explored each country’s problems as well as its potential. In another sign of acronym anxiety, HSBC had identified CIVETS – Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa, as another group of emerging markets it was tracking. Nevertheless, fund managers stressed that the appeal of acronym investment was fading, saying that such groupings do not take into account different stages of development of the countries involved and risk sidelining other promising markets. The groupings have also frequently suffered from disappointing performances of their listed companies, the main target of foreign investors. The Reuters report argued that O’Neill’s timing for creating MINT was not ideal, arguing that Turkey had been rocked by an investigation into alleged corruption following street protests last summer, while Nigerian politics are in turmoil before elections next year. Indonesia, along with other emerging economies which are running large current account deficits, is experiencing a flight of investors. “Mexico, Indonesia, Nigeria and Turkey are all very interesting countries but not much connected beyond the excuse for having an acronym,” the Chief Investment Officer of Emerging Equities at JP Morgan Asset Management, Richard Titherington said. Titherington advocated for groupings by concepts such as markets where companies offer the highest dividend yields. BRIC markets have underperformed the broader MSCI index of emerging stocks in dollar terms in the past three years, with emerging markets in turn lagging developed markets. Both the BRIC and MINT groupings focus on demographics – countries which are going to grow rapidly by the middle of the century, due to their young populations. This is an attraction of frontier economies – those which are at an earlier stage of development than established emerging markets. One such is Nigeria, whose stock market has been an extreme outperformer, doubling in value last year. But relying exclusively on demographics to make investment decisions is risky, the Frontier Fund Manager at HSBC Asset Management, Andrew Brudenell said. Instead, Brudenell urged investors to look at countries with weaker corporate regulation and where relatively low levels of goods and services are available, offering potential for growth. These factors should produce the best returns on company earnings. “Demographics are definitely one of the (investment) criteria, the others are also criteria,” Brudenell said. “We would not necessarily decide MINT are interesting countries to invest in, there are lots of other ones.” To the Chief UK Strategist at UBS Wealth Management, Bill O’Neill: “These countries do not have an independent monetary cycle. In these environments, emerging markets do struggle short term.”

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