Bric Value Speculation

by | Dec 20, 2009 | Multi Currency Investing

Here is a good multi currency idea… invest in the best value BRIC countries (Brazil, Russia, India and China) and speculate on the ups and downs of their value.

This makes sense because these countries are still viewed as emerging markets… but they now are major economies.

Together, these four countries generate approximately 27% of the world´s Gross Domestic Product (GDP).

The BRIC economies are also growing faster than in the Western world.  The average annual GDP growth of a BRIC nation was greater than 7% before the recession, as compared to approximately 2% for a G-7 nation.

The future growth of the global economy depends largely on the BRIC economies continuing growth.

The simplest way to invest in BRIC economies is with a BRIC ETF like iShares MSCI BRIC Index Fund. This ETF tracks the MSCI BRIC Index and invests in about 260 different companies in these four countries.  Invest and leave the investment alone for long term growth.

Jyske Global Asset Management recommends BRIC allocation as below :

If you have a Low Risk profile                  : up to 5%
If you have a Medium Risk profile          : up to 10%
If you have a High Risk profile                : up to 15%

A more complicated but potentially more profitable approach is to weight your investments more heavily in the good value BRIC countries and sell shares in the BRICS with poor value.

Heavier speculation  could buy the good value BRICS and short the low value BRICS.

For example you can see below why right now may be a good time to sell investments in India and invest in China.

Twenty-one markets were up in the 2009 third quarter, India was one of the best up 88.3% which reduces the value of the shares now… making bargains harder to acheive.   China’s equity market rose only +7.8 % in the same period.

The Brazilian market (+102%) and Russia (+84.9%) had even higher appreciation… but they began from a lower base so they still represent better overall value.

Price to Book  Price            Price      Dividend   Cash Flow     Return on
Value             Cash Flow    Earnings     Yield       Return on        Equity
India    3.73      14.7              20.9        0.88               25.4               17.8
China   2.42     11.0               19.1         1.98                21.9               12.7
Brazil   2.16      8.5                14.1         3.73                25.5               15.3
Russia  1.16      5.9                 9.6          1.51                19.6                12.1

Charts of the Bombay and Shanghai indicies tell the tale.

The Bombay index has almost recovered to its all time high after the 2007-8 correction.


The Shanghai recovery has been far more modest.

stock chart

Short term gains like India’s are usually fueled by sentiment rather than fact.  Unless you see some compelling economic reason why India has better prospects than China… more China and less India now makes sense.

However, investing in BRIC countries at all is not for the faint of heart. During the recent recession BRIC`s lost about 67% in share price, peak to trough. Since the bottom in March the markets have recovered about half of this. When investing in these market you should consider it to be a long-term investment.

Government supported ease to cheap money all over the world has encouraged speculation in these thinly traded markets.  Any hint of bad economic news or rising interest rates can send all the BRICS tumbling.

Another crash will make them better buys than they are now… but that will be of little consolidation if you portfolio is overloaded with the BRICS that fell.


Learn more about BRICS. Join Merri and me along with Thomas Fischer and my portfolio manager Anders Neilsen at our February 11-14 IBEZ seminar.

Learn more at  Quantum Wealth Florida -International Investing & Internet Business, Mt. Dora, Fl.