Want to rebuild your stock portfolio? Start with a BRIC strategy.
As promoted by Goldman Sachs Group in 2001, this approach focuses on Brazil, Russia, India and China. While their stock markets were as battered as those in North America and Europe in 2008, most of them may recover faster and offer sustained growth. Only the Russian economy raises some questions.
Dogged by loan problems, joblessness and low oil prices, Russia’s economy will contract this year and is the weakest in the BRIC family. The country’s population shrank in 2008 for the 14th straight year.
China, India and Brazil are a different story. It is impossible to ignore the population growth and human capital in these developing nations, which don’t have a fraction of the weaknesses that the Western banking system has.
Another reason for renewed faith in the BRIC strategy — or rather “BIC” (excluding Russia) — is the eventual economic decoupling of China from the US. At some point, China will wean itself off its reliance on export income and concentrate on domestic demand. That’s good news for international investors given its more than 1.3 billion people.
China, India and Brazil aren’t suffering as much from the crippling leverage problems of the US and Europe. The three countries are unlikely candidates for large American-style borrowing to fix banking and housing markets.
They are less likely to be saddled with inflation and debt when the global recession ends.
With the Group of 20 Economic Summit starting on April 2, People’s Bank of China Governor Zhou Xiaochuan last week suggested that the dollar shouldn’t be the world’s reserve currency anymore.
China has a sound reason to assert its economic independence. While the country’s economic growth has slowed from 13 per cent in 2007, it is being buoyed by the government’s $585 billion stimulus plan.
As with the US stimulus package, Chinese leaders have focused on infrastructure projects through 2010 and may launch another round.
Public housing, railways, highways, airports and reconstruction projects in Sichuan province (devastated by an earthquake last year) are under way.
The Chinese economy, the third-largest in the world, is likely to grow almost 8 per cent in 2009. In contrast, Japan’s, South Korea’s and Taiwan’s may shrink this year.
China’s stock market, though, doesn’t reflect the country’s relative financial strength.
Unlike the US, which is largely borrowing from China and other nations to finance its stimulus programme and other government spending, China is bolstering its economy from a huge cash pool.
Its foreign-exchange reserves alone amount to almost $2 trillion. Chinese households are also prodigious savers.
Also projected to grow are Brazil and India. Brazil grew 5 per cent last year and the resource-rich country will benefit from trade with a growing China. India, which is getting a boost from a $31-billion government stimulus, will also see improved domestic demand.
(John F Wasik is a Bloomberg News columnist.)
