The Next BRICs: Introducing the ‘MAVINS’

Much has been made of the BRIC countries (Brazil, Russia, India, and China) and their return to center state in 2010. There is no argument here that their growth potential is promising, and equally as important, their political clout is rising. It is hard to say that they really deserve the tag of “Emerging Markets” any longer. The graph below illustrates the enourmous outperformance of the “BRICs” relative to Emerging Markets and the World Index.

Source: Bloomberg

Now may be the time to look beyond the BRIC countries and to look to a new frontier of countries with enormous growth potential. While some of these fall out of the traditional definition of “Emerging Markets” (namely, Australia), who really cares about such titles anyway? The Business Insider had some interesting insights in going beyond BRICs to the ‘MAVINS’  http://www.businessinsider.com/the-next-10-brics-2010-1

1) Mexico

Don’t let recent criminal violence fool you, Mexico will become an enormous economy. Goldman Sachs even originally considered including the nation as a BRIC, but then removed it due to finding it ‘too developed’. Yet Mexico still has a very, very long way to go, with GDP per capita on a purchasing power basis of just $14,300 vs. America’s $47,500. The country also boasts a growing middle class and a healthy population growth trajectory. At 111 million people now, Mexico is set to reach 125 million by 2020 and then 148 million by 2050. Strategically positioned next to the world’s largest economy, Mexico will rapidly close the income gap it has with the U.S., essentially as a direct extension of the U.S. economy. 2020 Potential GDP in Today’s Dollars: $2.5 trillion* (17% of an America) 2050 Potentail GDP in Today’s Dollars: $10.9 trillion** (75% of an America) Source: CIA World Factbook, U.S. Census Bureau, GDP and GDP per capita using purchasing power parity *Assuming a back-of-the-envelope ~5% real GDP growth, 1% due to population growth and 4% due to productivity.**Assuming a back-of-the-envelope ~4.7% GDP growth, .7% due to population growth and 4% due to productivity.

A larger than expected rebound in Mexico’s larger, richer nothern neighbor will certainly help its future prospects. However, Mexico is also a commodities play. It is the world’s 7th largest oil producer and also a large exporter of silver, fruits, cotton, and coffee. Investors can gain exposure to Mexico through the iShares MSCI-Mexico (EWW) EWW quick facts:

Top Monthly Holdings as of 11/30/2009
AMERICA MOVIL SAB DE CV-SER L 23.00%
WALMART DE MEXICO-SER V 8.06%
CEMEX SAB-CPO 6.07%
FOMENTO ECONOMICO MEXICA-UBD 5.66%
GRUPO MEXICO SA-SER B 5.33%
GRUPO TELEVISA SA-SER CPO 5.04%
TELEFONOS DE MEXICO SAB SER 4.29%
TELMEX INTERNACIONAL SAB-L 4.06%
GRUPO FINANCIERO BANORTE-O 3.20%
CARSO GLOBAL TELECOM-A1 2.98%
Total 67.68%
Sector Breakdown as of 11/30/2009
Telecommunication Services
35.21%
Consumer Staples
22.77%
Materials
13.64%
Consumer Discretionary
12.68%
Industrials
9.10%
Financials
6.33%
S-T Securities
0.09%
Health Care
0.09%
Other/Undefined
0.10%
Total 100.00%

2) Australia

Australia is one of the most leveraged plays on global growth. Blessed as one of the richest commodities sources in the world, Australia literally provides the building blocks of Chinese growth and sits atop an vast reservoir of future wealth generation. In addition, it has a well developed manufacturing and services economy plus an enormous surplus of land. Theoretically, Australia could one day be another America, if only they could solve the continent’s water shortages and then exponentially increase the population through progressive immigration policies and cheap land. Yet they’ll be huge even before considering such long-term population potential. 2020 Potential GDP in Today’s Dollars: $1.5 trillion* (10% of an America) 2050 Potentail GDP in Today’s Dollars: $5.8 trillion** (40% of an America) Source: CIA World Factbook, U.S. Census Bureau, GDP and GDP per capita using purchasing power parity *Assuming a back-of-the-envelope ~5% real GDP growth, 1% due to population growth and 4% due to productivity. Population of 24 million as per current Census Bureau forecasts. **Assuming a back-of-the-envelope ~4.8% GDP growth, .8% due to population growth and 4% due to productivity. Population of 29 million as per current Census Bureau forecasts.

Australia will contiune to benefit from any strength in China, as it is its largest trading partner. China is also a major buyer of farmland and real estate in Australia. A definate short term risk in investing in Australia could be the closing of the ‘carry-trade’. As the dollar was pounded over much of 2009, Australia was a popular target for the carry trade. As the dollar moves higher, it could put pressure on that trade and thus funds like iShares MSCI-Australia (EWA). An intesting Australia hedge could be PowerShares DB US Dollar Index Bullish Fund UUP However, Australia could be a good long term play.

EWA quick facts:

Top Monthly Holdings as of 11/30/2009
BHP BILLITON LTD 15.12%
COMMONWEALTH BANK OF AUSTRAL 8.75%
WESTPAC BANKING CORP 7.67%
NATIONAL AUSTRALIA BANK LTD 6.00%
AUST AND NZ BANKING GROUP 5.64%
WOOLWORTHS LIMITED 3.76%
RIO TINTO LTD 3.41%
WESFARMERS LIMITED 3.27%
WESTFIELD GROUP 2.73%
WOODSIDE PETROLEUM LTD 2.64%
Total 58.99%
Sector Breakdown as of 11/30/2009
Financials
43.61%
Materials
26.34%
Consumer Staples
9.96%
Energy
6.77%
Industrials
4.49%
Health Care
3.03%
Consumer Discretionary
2.23%
Telecommunication Services
1.64%
Utilities
0.80%
Information Technology
0.52%
Other/Undefined
0.63%
Total 100.00%

3) Vietnam

Vietnam will undoubtedly be one of the hottest individual growth stories this decade. Following the Chinese growth model, this communist country is rapidily liberalizing its economy while benefitting from the near-term political stability and centralized command and control that communism provides. Agriculturally rich with a decent amount of oil, Vietnam is wasting no time to rapidly develop its manufacturing sector and move up the value chain. Coastally located with cheaper labor costs than many regional neighbors, relocating manufacturing to Vietnam will increasingly be a no-brainer. Even for Asian nations. And its population will be huge. Already larger than France or Germany, Vietnam’s population will comfortably exceed that of Japan by 2050. Vietnam’s meteoric rise is virtually preordained. 2020 Potential GDP in Today’s Dollars: $550 billion* (3.8% of an America) 2050 Potentail GDP in Today’s Dollars: $3.6 trillion** (25% of an America) Source: CIA World Factbook, U.S. Census Bureau, GDP and GDP per capita using purchasing power parity *Assuming a back-of-the-envelope ~7% real GDP growth, 1% due to population growth and 6% due to productivity. Population of 98 million as per current Census Bureau forecasts. **Assuming a back-of-the-envelope ~6.6% GDP growth, .6% due to population growth and 6% due to productivity. Population of 111 million as per current Census Bureau forecasts.

Vietnam is often viewed as China 20-25 years ago, albeit a much smaller version. However, economically there are some similiarities. Its low labor costs make it a potential manufacturing engine. The compete with other low cost labort markets, Vietnam has created a niche for itself and an uptick in global growth should help expand it further. Investors can gain exposure to Vietnam through Market Vectors Vietnam (VNM)

 

 

VNM Quick facts:

 

 

Sector Breakdown
As of November 30, 2009
Financials   44.0%
Energy   24.2%
Industrials   15.7%
Materials   7.4%
Consumer Discretionary   2.5%
Information Technology   2.3%
Utilties   2.3%
Consumer Staples   1.6%
 

 

 

4) Indonesia

Despite decades of past military rule and corruption, today Indonesia is a fast growing economy, even if it comes in fits and spurts. It’s also come a long way politically and is one of the largest democracies in the world with 240 million people. That’s more than France, Germany, and England combined. Standards of living have a long way to rise as well, with GDP per capita of just $3,900, which means tons of future potential. For example, if Indonesia could simply hit Mexico’s standard, its economy would be over three times its current size. The country is rich in oil, gas, coal, tin, copper, silver, and gold plus conveniently placed much closer to China and India than many other commodities sources. Finally, its long-term potential as a consumer market is enormous given that by 2050 it will have 313 million people, more than the U.S. has today. 2020 Potential GDP in Today’s Dollars: $1.8 trillion* (13% of an America) 2050 Potentail GDP in Today’s Dollars: $9.3 trillion** (65% of an America) Source: CIA World Factbook, U.S. Census Bureau, GDP and GDP per capita using purchasing power parity *Assuming a back-of-the-envelope ~5.9% real GDP growth, .9% due to population growth and 5% due to productivity. Population of 267 million as per current Census Bureau forecasts. **Assuming a back-of-the-envelope ~5.7% GDP growth, .7% due to population growth and 5% due to productivity. Population of 313 million as per current Census Bureau forecasts

 

 

 

There are a number of other reasons to to like Indonesia: Indonesia is a marginal supplier of natural resources to China and India (2 of the world’s largest countires and fastest growing economies), it has a large youth population and about 22 million more people are projected to join the workforce in the next decade and GDP per-capita growth had been strong pre-Crisis. Investors can gain exposure to Indonesia through Market Vectors Indonesia Index ETF (IDX)

IDX Quick Facts

Sector Breakdown
As of November 30, 2009
Financials   25.2%
Materials   23.1%
Energy   14.6%
Consumer Staples   12.5%
Consumer Discretionary   10.9%
Utilities   5.4%
Telecommunications   4.4%
Industrials   3.9%
 

 

5) Nigeria

Nigeria is the most populous nation in Africa, and one of the most populous in the world, with 155 million people. Furthermore, it’s expected to maintain an exceptionally high population growth rate through 2050, with a projected future 2050 population of 264 million people. Undoubtedly the nation’s growth story remains in its infancy, but we shouldn’t dismiss this emerging African giant. Nigeria is growing and liberalizing its economy, having only recently emerged from its military past as a new democracy. Extremely rich in oil, some might argue that Nigeria is just an oil-driven economy, but in the same sense it’s highly leveraged to global growth. Plus, it has huge domestic market potential. If the right economic policies can be maintained, it’s likely to diversify its economy over time. If GDP per capita could one day reach just Mexico’s current level, the economy would quintuple. 2020 Potential GDP in Today’s Dollars: $630 billion* (4% of an America) 2050 Potentail GDP in Today’s Dollars: $3 trillion** (21% of an America) Source: CIA World Factbook, U.S. Census Bureau, GDP and GDP per capita using purchasing power parity *Assuming a back-of-the-envelope ~5.4% real GDP growth, 1.4% due to population growth and 4% due to productivity. Population of 182 million as per current Census Bureau forecasts. **Assuming a back-of-the-envelope ~5.3% GDP growth, 1.3% due to population growth and 4% due to productivity. Population of 264 million as per current Census Bureau forecasts.

Yes, it is true, Nigeria can be a scary place. Corruption runs rampant and there is a great deal of ethnic and religious tensions. On the surface, hardly an ideal investment candidate. However, democraphically the country is primed for growth and with an enormous wealth in oil (10th largest proven reserves) it will be hard to ignore. Investors can gain exposure to Nigeria through Market Vectors-Africa Index ETF (AFK) ~ 22% of the fund is invested in Nigerian assets (on & offshore totals).

AFK Quick Facts:

 

Sector Breakdown
As of November 30, 2009
Banks   27.9%
Basic Resources   19.7%
Telecommunications   12.2%
Oil & Gas   11.5%
Insurance   5.5%
Other   23.1%

 

 

6) South Africa

South Africa is the most successful African economy with strong modern institutions, vast commodity wealth (gold, platinum, coal, diamonds), and an excellent location at the tip of Africa. The nation has achieved a lot already, but there’s still a long way to go. While one portion of the population lives a developed-nation lifestyle, almost half the population remains below the poverty line according to the CIA World Factbook. This speaks to the economic potential South Africa could unlock, and surprise the world with. We think it will happen. Already the economy is well diversified across mining, agriculture, services and manufacturing and, like other MAVINS, can feed into global growth with its commodities advantage while developing its domestic markets further. Positioned as the gateway to Africa, South Africa will be the continent’s financial hub as well. Look out for this rising star. 2020 Potential GDP in Today’s Dollars: $880 billion* (6% of an America) 2050 Potentail GDP in Today’s Dollars: $2.6 trillion** (18% of an America) Source: CIA World Factbook, U.S. Census Bureau, GDP and GDP per capita using purchasing power parity *Assuming a back-of-the-envelope ~5% real GDP growth, 0% due to population growth and 5% due to productivity. Population of 49 million as per current Census Bureau forecasts. **Assuming a back-of-the-envelope ~5% real GDP growth, 0% due to population growth and 5% due to productivity. Population of 49 million as per current Census Bureau forecasts.

The hosts of the 2010 World Cup have struggled through the recession, but as commodities prices are rising, so do South Africa’s potential. A huge resource in minerals and natural resources, as sub-Saharan Africa’s most developed and advanced county, it might benefit most if the buzz of China’s “African Marshall Plan” ever comes to fruition. Investors can gain exposure to South Africa through iShares MSCI-South Africa EZA

EZA Quick Facts:

Top Monthly Holdings as of 11/30/2009
MTN GROUP LTD 11.00%
SASOL LTD 10.49%
STANDARD BANK GROUP LTD 7.02%
NASPERS LTD-N SHS 6.70%
ANGLOGOLD ASHANTI LTD 6.13%
IMPALA PLATINUM HOLDINGS LTD 5.80%
GOLD FIELDS LTD 4.55%
FIRSTRAND LTD 3.08%
SANLAM LIMITED 2.86%
ANGLO PLATINUM LTD 2.85%
Total 60.48%

Sector Breakdown as of 11/30/2009

 

Materials
27.76%
Financials
26.03%
Telecommunication Services
12.94%
Consumer Discretionary
11.44%
Energy
10.49%
Consumer Staples
4.90%
Industrials
4.63%
Health Care
1.63%
S-T Securities
0.11%
Other/Undefined
0.07%
Total 100.00%
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