Ever since Goldman Sachs’ Jim O’Neill gained international fame by coining the term “BRICs” to describe his thesis that Brazil, Russia, India and China would eventually become global powers, our industry has been bombarded with also-ran acronyms. Some readers may have heard of PIIGS, BIITS (Brazil, India, Turkey, and South Africa) or maybe MINTs (Mexico, Indonesia, Nigeria, and Turkey). Each of these has popped up to describe investment themes, good or bad. Some of them catch on — but for how long? The PIIGS (Portugal, Ireland, Italy, Greece and Spain) were the talk of the town a few years ago when markets became gripped with fear that the European Union would come apart. Today, that acronym has mostly disappeared.
The problem with these themes is that they often attempt to describe an entire asset class using just a representative sample. For example, the so-called BRICs comprise only 41% of emerging market equities. What’s more, some countries show up in both the optimistic and pessimistic acronyms.
Though these catchy wordplay exercises are often temporary ways to capture interesting themes, they do a poor job of explaining the complete case for or against various asset classes. For example, the BRICs have historically been known as fast-growing economies, yet each has its own idiosyncratic culture, governmental structure and development agenda. Moreover, there are 15 countries with a notable presence in emerging markets, not four.
There are no shortcuts. With respect to the BRICs and emerging markets, investors have to study the entire asset class. After all, we know of no popular themes that include South Korea or Taiwan, though they are home to more than a quarter of the total value of emerging market stocks. Our industry latched onto the BRICs story with such vigor that a real risk exists that other major economies are being neglected in the research process. Needless to say, be careful if you hear more and more talk about the new one — CRaB (China, Russia and Brazil) — which interestingly uses three of the four BRICs to describe the countries that some believe will be a drag on emerging markets. It looks like investors have come full circle.
BMO Global Asset Management’s Multi-Asset Strategy group remains constructive on emerging market equities, believing that some of the pessimistic evidence against the group is overdone. We suspect the rise of negative acronyms like CRaB is an indication of the pessimism that continues to persist among investors, so we are content with a contrarian overweight in emerging equities relative to the U.S.