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« on: August 01, 2013, 08:41:59 am »
Commentary: Investing ideas: Tech, Africa, huge corporations
By Matthew Lynn
LONDON (MarketWatch) — When Goldman Sachs economist Jim O’Neil coined the term BRICS back in 2001, he created one of the most powerful investment themes of the last decade. The group of countries he identified — Brazil, Russia, India and China, with the later addition of South Africa — were fast developing into major economies with the potential to match, and even outstrip the United States, Japan and Germany in the top-tier of industrial powers.
That was a trend that few investors would want to miss out on. And over the following years, dozens of BRIC funds were launched, as people sought to get a share of their turbo-charged growth.
More than a decade later, however, the BRICS are not looking the sure bet they once were. But the one thing we know for sure about the markets is that there is always a big growth story somewhere. Investors need to believe in something.
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So what might replace the BRICS? Technology, mega-caps, and Africa are the three most likely candidates — each has the same story of explosive potential growth that the BRICS used to have.
There is little question that the quintet of nations identified by O’Neil as the giants of this century look a lot less robust than they did just a few years ago.
Brazil’s gross domestic product grew by only 1% last year, and it is not expected to grow by more than 2% this year. Riots in the streets suggest that public anger at inequality is rising — and that spells trouble for the future.
Russia’s economy is not expected to grow by any more than 2% this year, even though the oil price, the main driver of its growth, is above $100 a barrel. India does not look in much better shape. Growth has slowed to 4% this year, from 11% two years ago, and inflation is taking off. South Africa grew by only 2.5% last year and may not grow faster than 2% this year.
And China, the biggest of them all, is heading into rougher waters. Growth slowed to 7.8% this year, the first time it has been below 10% in a long time, and there are fears that its economy may crash as it attempts to make the transition from export-driven growth to domestic demand.
China, with its huge population, and industrial dynamism, is still on track to become a major economy. Brazil might be, but it is increasingly open to question. Russia is making far less progress than people hoped; it is struggling to move on from natural resources. And so are India and South Africa — neither looks certain to sustain rapid growth rates.
In reality, the BRICS concept does not stand up to serious scrutiny any more. You can argue about why that is. Maybe they never had the potential that was once assumed. Perhaps they have been hit by the slowdown in the developed world. Or they could be simply experiencing the bumps that are always on every road to development. But there is little doubt that their growth has slowed significantly — and they are hardly star performers anymore.
And yet, the markets always have a big growth theme. For the last decade it was the BRICS. Before that it was the dot-com bubble. Reaching back into the Sixties, it was the Nifty Fifty of huge companies, and in the 1920s it was the radio revolution. Markets are inherently excitable — and they need something to get excited about it. It is part of the psychology of investment to have a big story that turns into a bandwagon.
So what might it be in the decade ahead? Here are three possible mega-themes to replace the BRICS.
First, technology. We have already been through one huge wave of technological change, with the rise of computers, the Internet and smartphones. But perhaps we are only just getting stated? Computing is about to transform some very big industries.
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July 31, 2013, 6:31 a.m. EDT
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