BRIC Investor Report: Projections for World Markets How To Profit... Beyond the BRIC Phenomenon

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1 BRIC Investor Report: Projections for World Markets How To Profit... Beyond the BRIC Phenomenon In 2003, a team of economists at Goldman Sachs hatched an acronym that would carry monumental connotations for emerging market investors. Dreaming with BRICs: The Path to 2050 was the name of the report, and the prediction was that a pantheon of four emerging markets--brazil, Russia, India, and China--would become the world s economic pacesetters, embracing capitalist growth ideals and taking advantage of national resources as developed markets like the United States and western Europe slowed down. By 2050, these four BRIC economies could be bigger than the entire Group of Six leading industrialized nations (the G6), leaving only the United States and Japan in the top six after BRIC nations nudge out the rest. Per capita wealth (income per person) could also decouple from overall national GDP as gaps between mega-rich and destitute Chinese, Indians, and other developing country citizens widen. In the BRIC thesis, China and India would lead the world in manufacturing and services ( the world s workbench and the world s outsourcing hub, respectively), and Brazil and Russia with their sugar cane, soy, and natural gas have a lock on key commodity supplies. In addition, each of these countries has the potential to massively expand its middle class as foreign direct investment (FDI) floods dollars and opportunity into previously underinvested economies. More middle class wealth means new markets for homebuilders and purveyors of luxury goods like clothing, jewelry, and cars, providing new opportunities for established western companies in those fields as their traditional consumer bases sputter. Here s Where We Stand, 4 Years Down the Road The Dow is at an all-time high, and so are the stock markets of the BRIC economies: Brazil s BOVESPA index, Russia s MICEX in Moscow, India s SENSEX and China s Shanghai composite all reflect gains in the hundreds of percentage points. Goldman Sachs s own BRIC fund (NASDAQ:GBRAX) is up 85% over the past year, after the investment bank dragged its feet and waited a full two years before profiting from its own leading letters. The Dow and its record-setting pace only logged a quarter of that progress, rising just over 20% in 52 weeks.

2 Last week, one of the original BRIC report s co-authors told India s Economic Times that even the torrid pace projected four years ago is shy of reality. They are outdoing our projections, Roopa Purushothaman told members of the press in Mumbai, India s financial center (formerly known as Bombay). China could overtake Germany in the size of its economy by 2008, Purushothaman and her colleagues had said in their write-up, eliciting groans from many naysayers who thought the ostensibly Communist country would never pass Europe s industrial dynamo. A full year early, that prediction has come true. But this isn t crystal ball stuff. This is global economics with a heavy dose of geopolitics mixed in. Even if two out of the four countries [Brazil, Russia, India and China] perform according to the projections, it will be considered as a huge success, the economist added. Market psychology and the dollar factor in, with American investors not only looking to bonds but also to foreign markets on the upswing, as they pull their money out of a domestic market that is only in the eye of the sub-prime storm--not yet in the clear. There is growing talk of decoupling, which describes the greater capacity for Asia, Eastern Europe, and Latin America to bounce back if the world s largest consumer base (the United States) falls off a credit cliff.

3 We tend to see exaggeration in these markets, in both the peaks and the valleys of index momentum. Check out this chart of Hong Kong s Hang Seng index (in blue) vs. Shanghai (in red) and the Dow way down there at the bottom in green. Now, some people may treat you like you were born yesterday, but I know you remember this August. The markets seemed like they would never recover from panicked selloffs in financials, and the harshest real-estate market appraisals started pouring in (again, they haven t stopped... just check today s news). Wall Street seemed awfully wobbly, but Hong Kong got clobbered. Hong Kong is the preferred play in Greater China for most foreign investors. Even more sophisticated Chinese retail investors want a crack at Hong Kong, since Shanghai share prices are being driven astronomically high as over a hundred thousand trading accounts are opened every day. Retail investors on the mainland aren t yet allowed to buy H-shares, though, so Shanghai is propelled farther and faster, while Hong Kong s Hang Seng index reflects more of what is actually happening in the rest of the world. But as deep as the troughs seem, these waves crest higher and higher each time. BRIC Conclusions There is always more to the story. If you only buy BRIC, you miss out on the rest of the world--countries like Indonesia and Colombia and Ukraine that can benefit handsomely as regional BRIC powerhouses become pivot points for the countries around them.

4 Indonesia s Jakarta exchange is nothing to scoff at, almost neck-and-neck with Hong Kong since the leaves turned last year: Of course, Russia is keen to re-establish its sphere of influence that went bye-bye with the fall of the Soviet Union. Being Europe s leading natural gas provider makes it a heck of a lot easier for capitalist Russia to attract friends. Who wants to be left out in the cold? The London Stock Exchange is where you ll find Gazprom, Rosneft (the national oil company), and many other Russian and former Soviet Union firms (like KazMunaiGaz, Kazakhstan s state oil company). London is also home to a bevy of Russian tycoons who take advantage of a major loophole to avoid paying hundreds of millions of pounds in taxes. Surely Moscow real estate would suffer if these former apparatchiks had to cough up as much of their income as the average Brit. No wonder Moscow real-estate prices are soaring past London s these days. The BRIC effect we are seeing is akin to dropping a stone in the water. We see some heavy waves but also ripples of prosperity that shouldn t be ignored for the bigger splash. There has never been a better time to get in on global markets. Some international investment advisors are content with spouting buzzwords like BRIC, but there s much, much more to international markets than the four countries I ve told you about. To learn more about Wealth Daily s truly global Orbus Investor service, and get the inside scoop on

5 my upcoming trip to China (as well as South Korea and Japan), click here: Regards, Sam Hopkins Wealth Daily, Copyright 2007, Angel Publishing LLC. All rights reserved. The content of this site may not be redistributed without the express written consent of Angel Publishing. Individual editorials, articles and essays appearing on this site may be republished, but only with full attribution of both the author and Wealth Daily as well as a link to com. Your privacy is important to us we will never rent or sell your or personal information. Please read our Privacy Policy. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. Wealth Daily does not provide individual investment counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. The publisher, editors and consultants of Angel Publishing may actively trade in the investments discussed in this publication. They may have substantial positions in the securities recommended and may increase or decrease such positions without notice. Neither the publisher nor the editors are registered investment advisors. Subscribers should not view this publication as offering personalized legal or investment counseling. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question.