Forget BRICs, it’s VICs

Analysts are all but united in the belief that the ‘BRIC’ has crumpled for Canadian investors looking at emerging markets, with many convinced it’s now ‘VIC’ for victory

When it comes to emerging markets these three countries are putting the VIC in victory.

“If you’re looking at some ideas short term, India, China and Vietnam would be ours,” said Michael Greenberg, portfolio manager at Franklin Templeton Solutions. The Next 11, which includes Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea and Vietnam have also been mentioned as a replacement of the BRICs.

Since Goldman Sachs coined the term BRICs in 2001 – bumping MINT economies off the hotlist – many analysts have believed Brazil, Russia, India and China were poised for strong economic growth. However, Goldman Sachs actually closed its shrinking BRIC equity fund in September and shifted the remaining assets into a broader fund covering all emerging markets.

“We’re kind of concerned about Brazil and Russia given oil dependence. There are some political concerns there, and with Russia and Syria there are some policy issues,” said Greenberg.

While the optimism around Brazil and Russia seems to have all but evaporated, there are still high hopes for India and China. Despite the latter being in the headlines all summer after its economy took a nosedive, advisors shouldn’t be too hasty in writing the country off.

“China is interesting because it’s priced at this point for a pretty hard landing and we think that’s going to be avoided,” Greenberg said. “There’s this big transition from construction and investment to the service sector. The service sector is holding up pretty well. I think mid to long term that could be attractive especially if they join the Trans Pacific Partnership as many expect.”

India has also hit a bit of a rough patch, but there’s still an optimistic outlook.

“India’s a country that looks set for some structural reform and there’s a lot of low hanging fruit there,” said Greenberg. “And it’s quite un-correlated to China. There’s a large domestic economy there.”

Vietnam is the newcomer to the list.

“If you’re looking at the TPP, Vietnam would be a country that’s going to benefit from that mid- to long-term. From a structural story Vietnam is looking interesting.”

Despite, the optimism around the VIC countries, Greenberg is quick to point out that pinpointing a group of countries is difficult.

“The BRIC concept has kind of gone away and with emerging markets there is a lot of differentiation between the countries,” he said. “It’s tough to lump these countries together. It’s so hard to long term what the political situation is going to be. Who new oil was going to go under 40? There are a lot of things that make these countries real winners and some real losers depending on what’s going on in the economic backdrop.”

With that in mind it’s important to pay close attention to emerging markets investments.

“I don’t think it would be wise to allocate it and then forget about it in some of these countries,” he said. “Things change pretty quick.”